Registration No. 33-20827
Inv. Co. Act No. 811-5518
As filed with the Securities and Exchange Commission on NOVEMBER 26, 1996
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
POST-EFFECTIVE AMENDMENT NO. 40 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 42 [X]
----------------------------------
THE RBB FUND, INC.
(Government Securities Portfolio: RBB Family Class; BEA International
Equity Portfolio: BEA Class, BEA Investor Class and BEA Advisor Class; BEA High
Yield Portfolio: BEA Class, BEA Investor Class and BEA Advisor Class; BEA
Emerging Markets Equity Portfolio: BEA Class, BEA Investor Class and BEA Avisor
Class; BEA U.S. Core Equity Portfolio: BEA Class; BEA U.S. Core Fixed Income
Portfolio; BEA Class; BEA STRATEGIC Global Fixed Income Portfolio: BEA Class;
BEA Municipal Bond Fund Portfolio; BEA Class; BEA Balanced Fund Portfolio; BEA
Class; BEA Short Duration Portfolio: BEA Class; BEA Global Telecommunications
Portfolio: BEA Investor Class and BEA Advisor Class; ni Micro Cap Fund; ni
Class; ni Growth Fund; ni Class; ni Growth & Value Fund; ni Class; Boston
Partners Large Cap Value Fund; Boston Partners Investor Class, Boston Partners
Advisor Class and Boston Partners Institutional Class; Money Market Portfolio:
RBB Family Class, Cash Preservation Class, Sansom Street Class, Bedford Class,
Janney Class, Beta Class, Gamma Class, Delta Class, Epsilon Class, Zeta Class,
Eta Class and Theta Class; Municipal Money Market Portfolio: RBB Family Class,
Cash Preservation Class, Sansom Street Class, Bedford Class, Bradford Class,
Janney Class, Beta Class, Gamma Class, Delta Class, Epsilon Class, Zeta Class,
Eta Class and Theta Class; Government Obligations Money Market Portfolio: Sansom
Street Class, Bedford Class, Bradford Class, Janney Class, Beta Class, Gamma
Class, Delta Class, Epsilon Class, Zeta Class, Eta Class and Theta Class; New
York Municipal Money Market Portfolio: Bedford Class, Janney Class, Beta Class,
Gamma Class, Delta Class, Epsilon Class, Zeta Class, Eta Class and Theta Class)
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Bellevue Park Corporate Center
400 Bellevue Parkway
Suite 100
Wilmington, DE 19809
(Address of Principal Executive Offices)
----------------------------------------
Registrant's Telephone Number: (302) 792-2555
Copies to:
GARY M. GARDNER, ESQUIRE JOHN N. AKE, ESQUIRE
PNC Bank, National Association Ballard Spahr Andrews & Ingersoll
1600 Market Street, 28th Floor 1735 Market Street, 51st Floor
Philadelphia, PA 19103 Philadelphia, PA 19103
(Name and Address of
Agent for Service)
Approximate Date of Proposed Public Offering: as soon as possible
after effective date of registration statement.
It is proposed that this filing will become effective (check
appropriate box)
____ immediately upon filing pursuant to paragraph (b)
X on DECEMBER 3, 1996 pursuant to paragraph (b)
____
____ 60 days after filing pursuant to paragraph (a)(1)
____ on ______________ pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on _______________ pursuant to paragraph (a)(2) of rule 485
If appropriate, check following box:
____ this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
------------------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has elected to register an indefinite number of shares of common
stock of each of the SEVENTY-SEVEN classes registered hereby under the
Securities Act of 1933. Registrant filed its notice pursuant to Rule 24f-2 for
the fiscal year ended August 31, 1996 on October 28, 1996.
<PAGE>
THE RBB FUND, INC.
(RBB Family Shares of the Government Securities Portfolio,
Money Market Portfolio and Municipal Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page; The Fund;
Investment Objectives and Policies
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page; Dividends and
Distributions
7. Purchase of Securities Being Offered.. How to Purchase Shares;
Net Asset Value
8. Redemption or Repurchase.............. How to Redeem Shares; Net
Asset Value
9. Legal Proceedings..................... Inapplicable
PART B STATEMENT OF
ADDITIONAL INFORMATION
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives and
Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory, Distribution
and Servicing Arrangements
15. Control Persons and Principal Holders
of Securities..................... Miscellaneous
16. Investment Advisory and Other
Services.......................... Investment Advisory, Distribution
and Servicing Arrangements; See
Prospectus - "Management"
17. Brokerage Allocation and Other
Practices......................... Portfolio Transactions
</TABLE>
<PAGE>
<TABLE>
<S> <C>
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description of
Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered.......... Purchase and Redemption
Information; Valuation of Shares;
See Prospectus - "How to Purchase
Shares", "How to Redeem Shares"
and "Distribution of Fund Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Performance Data....... Performance Information
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Cash Preservation Shares of the Money Market Portfolio,
and Municipal Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of
Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Sansom Street Shares of the Money Market Portfolio,
Municipal Money Market Portfolio
and Government Obligations Money Market
Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and
Net Asset Value,
Shareholder
Servicing
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus - "The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities......................... Miscellaneous
16. Investment Advisory and Other
Services.............................. Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices............................. Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered.............. Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds.................... Valuation of Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Sansom Street Shares of the Money Market Portfolio,
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and
Net Asset Value,
Shareholder
Servicing
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus - "The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Cover Page
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
Cover Page
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of
Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the Money Market Portfolio,
Municipal Money Market Portfolio and Government
Obligations Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of
Shares
23. Financial Statements.................. Financial Statements
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
</TABLE>
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the
Municipal Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the
Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bedford Shares of the
Government
Obligations Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of
Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bradford Shares of the
Municipal Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Bradford Shares of the
Government
Obligations Money Market Portfolio)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Financial Statements
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
</TABLE>
<PAGE>
THE RBB FUND, INC.
(Janney Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Cover Page
3. Financial Highlights Information...... Financial Highlights
Information
4. General Description of Registrant..... Cover Page;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
Cover Page
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Financial Statements
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Beta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus -
"Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Gamma Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Delta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Epsilon Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Zeta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Eta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
THE RBB FUND, INC.
(Theta Shares of the Money Market Portfolio,
Municipal Money Market Portfolio, Government
Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio,)
Cross Reference Sheet
<TABLE>
<CAPTION>
FORM N-1A ITEM LOCATION
-------------- --------
PART A PROSPECTUS
<S> <C>
1. Cover Page............................ Cover Page
2. Synopsis.............................. Introduction
3. Financial Highlights Information...... Inapplicable
4. General Description of Registrant..... Cover Page;
The Fund;
Investment Objec-
tives and Policies;
Description of
Shares
5. Management of the Fund................ Management
6. Capital Stock and Other Securities.... Cover Page;
Dividends and
Distributions;
Description of
Shares
7. Purchase of Securities Being Offered.. Purchase and
Redemption of
Shares - Purchase
Procedures, and Net
Asset Value
8. Redemption or Repurchase.............. Purchase and
Redemption of
Shares - Redemption
of Shares, and Net
Asset Value
9. Legal Proceedings..................... Inapplicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B STATEMENT OF
ADDITIONAL INFORMATION
<S> <C>
10. Cover Page............................ Cover Page
11. Table of Contents..................... Contents
12. General Information and History....... General; See
Prospectus -
"The Fund"
13. Investment Objectives and Policies.... Investment Objectives
and Policies
14. Management of the Fund................ Directors and Officers;
Investment Advisory,
Distribution and Servicing
Arrangements
15. Control Persons and Principal Holders
of Securities...................... Miscellaneous
16. Investment Advisory and Other
Services........................... Investment Advisory,
Distribution and Servicing
Arrangements; See Prospectus -
"Management"
17. Brokerage Allocation and Other
Practices.......................... Portfolio Transactions
18. Capital Stock and Other Securities.... Additional Information
Concerning Fund Shares; See
Prospectus - "Dividends and
Distributions" and "Description
of Shares"
19. Purchase, Redemption and Pricing of
Securities Being Offered........... Purchase and Redemption
Information; Valuation of
Shares; See Prospectus -
"Purchase and Redemption of
Shares" and "Distribution of
Shares"
20. Tax Status............................ Taxes; See Prospectus - "Taxes"
21. Underwriters.......................... Not Applicable
22. Calculation of Yield Quotations of
Money Market Funds................. Valuation of Shares
23. Financial Statements.................. Inapplicable
</TABLE>
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the appropriate
item, so numbered in Part C of this Registration Statement.
<PAGE>
===================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR BY
THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE.
- --------------------------------------------------
TABLE OF CONTENTS
PAGE
Introduction.............................. 2
Financial Highlights...................... 5
Investment Objectives and Policies........ 9
Investment Limitations.................... 17
Management................................ 20
Distribution of Shares.................... 22
How to Purchase Shares.................... 23
How to Redeem Shares...................... 27
Net Asset Value........................... 29
Dividends and Distributions............... 30
Taxes..................................... 30
Description of Shares..................... 31
Other Information......................... 32
Appendix A................................ 34
Account Application....................... Center
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
CUSTODIAN
PNC National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
===================================================
<PAGE>
THE RBB FAMILY
OF THE RBB FUND, INC.
The RBB Family consists of three classes of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company. The shares of such
classes (collectively, the "RBB Family Shares" or "Shares") offered by this
Prospectus represent interests in one of three investment portfolios of the Fund
and are designed to offer a variety of investment opportunities. The investment
objectives of each investment portfolio described in this Prospectus are as
follows:
GOVERNMENT SECURITIES PORTFOLIO--to provide the highest level of
current income consistent with liquidity and a low risk to principal from a
portfolio of U.S. Government obligations. It seeks to achieve such
objective by investing in obligations issued or guaranteed by the U.S.
Treasury or other agencies or instrumentalities of the United States
Government.
MONEY MARKET PORTFOLIO--to provide as high a level of current interest
income as is consistent with maintaining liquidity and relative stability
of principal. It seeks to achieve such objective by investing in a
diversified portfolio of U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and relative stability of principal. It seeks to
achieve such objective by investing substantially all of its assets in a
diversified portfolio of short-term Municipal Obligations. During periods
of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations the interest on which
is exempt from regular Federal income tax, but which may constitute an item
of tax preference for purposes of the Federal alternative minimum tax. The
Fund seeks to maintain a constant net asset value for shares of the
Municipal Money Market Portfolio.
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.
This Prospectus contains 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 free of charge from the Fund's distributor by
calling (800) 888-9723.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the three classes of shares offered by this
Prospectus (collectively, the "RBB Family Classes" or the "Classes") represents
interests in one of the following three investment portfolios (collectively, the
"Portfolios"): Government Securities Portfolio; Money Market Portfolio; and
Municipal Money Market Portfolio.
The investment philosophy of the Fund is based on the premise that the
long-term goals of most investors can be achieved by having the opportunity to
invest in major segments of the securities markets through conservatively
managed portfolios. The Government Securities and Money Market Portfolios
described in this Prospectus represent major segments of the securities markets.
Each of these Portfolios seeks to achieve a reasonable total rate of return
consistent with minimal levels of risk. Risk is managed in such Portfolios by
careful analysis of economic conditions and of the securities held and through
proper diversification within a Portfolio. The Municipal Money Market Portfolio
provides a tax-exempt alternative to the Money Market Portfolio.
FUND MANAGEMENT
PNC Institutional Management Corporation ("PIMC"), a wholly owned
subsidiary of PNC Bank, National Association ("PNC Bank"), serves as the
investment adviser to the Portfolios. PNC Bank serves as the custodian to the
Fund and the sub-adviser to all Portfolios other than the Government Securities
Portfolio, which has no sub-adviser. PNC Bank and its predecessors have been in
the business of managing the investments of fiduciary and other accounts since
1847 and with its subsidiaries currently manages over $31.4 billion of assets,
of which approximately $28.3 billion are mutual funds.
PFPC Inc. ("PFPC") serves as the administrator to the Government Securities
Portfolio, and the Municipal Money Market Portfolio and as the transfer and
dividend disbursing agent to the Fund.
THE DISTRIBUTOR
Counsellors Securities Inc. (the "Distributor"), a wholly owned subsidiary
of Warburg, Pincus Counsellors, Inc. ("Warburg"), serves as the Fund's
distributor.
INVESTMENT PORTFOLIOS
The investment objective of the GOVERNMENT SECURITIES PORTFOLIO is to
provide the highest level of current income consistent with liquidity and a low
risk to principal from a portfolio of U.S. Government obligations. The
Government Securities Portfolio seeks to achieve this objective by investing in
obligations issued or guaranteed by the United States Treasury or other agencies
and instrumentalities of the United States Government.
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. 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 and that meet certain ratings criteria and
present minimal credit risks to the Money Market Portfolio.
The investment objective of the MUNICIPAL MONEY MARKET PORTFOLIO is to
provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. To achieve this objective the Municipal Money Market Portfolio
invests substantially all of its assets in a diversified port-
2
<PAGE>
folio of short-term Municipal Obligations that meet certain ratings criteria and
present minimal credit risks to the Municipal Money Market Portfolio. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations the interest on which is
exempt from regular Federal income tax but which may be an item of tax
preference for the purposes of the Federal alternative minimum tax.
The net asset values per share of shares representing interests in the
Government Securities Portfolio will fluctuate as the values of the portfolio
change in response to changing market rates of interest and other factors. Each
of the Money Market and Municipal Money Market Portfolios seeks to maintain a
net asset value of $1.00 per share; however, there can be no assurance that the
Money Market and Municipal Money Market Portfolios will be able to maintain a
stable net asset value of $1.00 per share.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as percentage of offering price) ................................... 4.75%(1)
ANNUAL FUND OPERATING EXPENSES (RBB FAMILY CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS (3)
<TABLE>
<CAPTION>
GOVERNMENT MUNICIPAL
SECURITIES MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Management fees (after waivers)(2) ........................... 0% .20% .05%
12b-1 fees (after waivers)(2) ................................ .40 .40 .40
Other Expenses (after waivers and reimbursements) ............ .30 .40 .55
---- ---- ----
Total Fund Operating Expenses (RBB Family Classes)
(after waivers and reimbursements) ........................ .70% 1.00% 1.00%
==== ==== ====
<FN>
(1) No Sales Charge is imposed upon the acquisition of Shares representing
interests in the Money Market Portfolio or Municipal Money Market Portfolio
or upon any other exchange of Shares of one Portfolio for Shares in another
Portfolio if a Sales Charge was previously imposed with respect to the
Shares to be exchanged.
(2) Management fees and 12b-1 fees are each based on average daily net assets
and are calculated daily and paid monthly.
(3) Before Expense Reimbursements and Waivers for the Government Securities
Portfolio, Money Market Portfolio and Municipal Money Market Portfolio,
Management fees would be .40%, .37% and .33%, respectively; 12b-1 fees
would be .40%, .40% and .40%, respectively; Other Expenses would be 1.25%,
17.76% and 215.39%, respectively; and Total Fund Operating Expenses would
be 2.05%, 18.53% and 216.12%, respectively.
</FN>
</TABLE>
3
<PAGE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment in each
of the Portfolios, assuming (1) a 5% annual return, and (2) redemption at the
end of each time period:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
Government Securities ....... $54* $69* $85* $130*
Money Market** .............. $10 $32 $55 $122
Municipal Money Market** .... $10 $32 $55 $122
* Reflects the imposition of the maximum sales charge at the beginning of the
period.
** Other classes of these portfolios 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
(RBB Family Classes) 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 any of the RBB Family Classes of
the Fund will bear directly or indirectly. (For more complete descriptions of
the various costs and expenses, see "Management" and "Distribution of Shares"
below.) The Fee Table reflects a voluntary waiver of Management fees for each
Portfolio. However, there can be no assurance that any future waivers of
Management fees (if any) will not vary from the figures reflected in the Fee
Table. In addition, the investment adviser is currently voluntarily assuming
additional expenses of some of the Portfolios. There can be no assurance that
the investment adviser will continue to assume such expenses. Assumption of
additional expenses will have the effect of lowering a Portfolio's overall
expense ratio and increasing its yield to investors. The expense figures are
based on atual costs and fees charged to the Classes.
OFFERING PRICES
Shares that represent interests in the Government Securities Portfolio the
"Non-Money Market Portfolio") will be offered to the public at the next
determined net asset value after receipt by PFPC Inc. ("PFPC"), the Fund's
transfer agent, of an order plus a maximum sales charge of 4.75% of the offering
price on single purchases of less than $100,000. The sales charge is reduced on
a graduated scale on single purchases of $100,000 or more.
Shares that represent interests in the Money Market Portfolio and the
Municipal Money Market Portfolio (collectively, the "Money Market Portfolios")
are offered to the public at their net asset value of $1.00 per share with no
sales charge. There can be no assurance that the net asset value per share of
each of the Money Market Portfolios will always be maintained at $1.00.
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS
The minimum initial investment for each Portfolio is $1,000. Subsequent
investments must be $100 or more. See "How to Purchase Shares."
EXCHANGES
Shares of one RBB Family Class may be exchanged for Shares of any other RBB
Family Class at their net asset value (plus any applicable sales charges in the
case of exchanges for Shares of the Non-Money Market Portfolio unless
4
<PAGE>
a sales charge has already been paid with respect to such shares) next
determined after receipt by PFPC of an exchange request. No exchange fee is
currently charged for exchanges; however, the Fund reserves the right to impose
a $5 administrative charge for each exchange. See "How to Purchase
Shares--Exchange Privilege."
REDEMPTION PRICE
Shares may be redeemed at any time at their net asset value next determined
after receipt by PFPC of a redemption request. The Fund reserves the right, upon
30 days written notice, to redeem an account in any of the Classes if the net
asset value of the investor's Shares in that account falls below $500 and is not
increased to at least such amount within such 30-day period. See "How to Redeem
Shares--Involuntary Redemption."
CERTAIN FACTORS TO CONSIDER
An investment in any of the Classes is subject to certain risks, as set
forth in detail under "Investment Objectives and Policies." As with other mutual
funds, there can be no assurance that any Portfolio will achieve its objective.
Some or all of the Portfolios, 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, the lending of
portfolio securities and engaging in options and futures transactions. All of
these transactions involve certain special risks, as set forth under "Investment
Objectives and Policies."
SHAREHOLDER INQUIRIES
Any questions or communications regarding a shareholder account should be
directed to PFPC, Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 430-9618.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the RBB Family Classes representing interests in the Government
Securities, Money Market and Municipal Money Market Portfolios for the periods
indicated. The financial data included in this table for each of the periods
ended August 31, 1992 through August 31, 1996, are a part of the Funds's
financial statements for each of the above Portfolios 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 each such Portfolio for the periods
ended August 31, 1989, 1990 and 1991 are a part of previous financial statements
audited by Coopers & Lybrand L.L.P. The financial data included in this table
should be read in conjunction with the financial statements and related notes
included in the Statement of Additional Information.
5
<PAGE>
RBB FAMILY CLASSES
THE RBB FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS(e)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO
----------------------------------------------------------------------------------------------------
FOR THE PERIOD
AUGUST 1, 1991
FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992 AUGUST 31, 1991
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $ 9.54 $ 9.69 $ 10.73 $ 10.46 $ 10.12 $ 10.00
------- ------- --------- -------- -------- ----------
Income from investment
operations:
Net investment income ..... 0.5220 0.5819 0.5931 0.7080 0.8002 0.0737
Net gains (losses)
on securities (both
realized and
unrealized) .......... (0.2540) 0.0361 (0.8651) 0.3300 0.3408 0.1213
------- ------- --------- -------- -------- ----------
Total from investment
operations. ................ 0.2680 0.6180 (0.2720) 1.0380 1.1410 0.1950
------- ------- --------- -------- -------- ----------
ess distributions
Dividends (from net
investment income) ........ (0.5220) (0.5819) (0.5901) (0.7080) (0.8010) (0.0750)
Distributions (from excess
of net investment income) . -- -- (0.0235) -- -- --
Return of capital ........... (0.2460) (0.1861) (0.1544) (0.0600) -- --
------- ------- --------- -------- -------- ----------
Total distributions ........ (0.7680) (0.7680) (0.7680) (0.7680) (0.8010) (0.0750)
------- ------- --------- -------- -------- ----------
Net asset value,
end of period ............... $ 9.04 $ 9.54 $ 9.69 $ 10.73 $ 10.46 $ 10.12
======= ======= ========= ======== ======== ==========
Total return .................. 2.75%(d) 6.72%(d) (2.60%)(d) 10.36%(d) 11.73%(d) 1.95%(c)(d)
Ratios/Supplemental Data
Net assets, end of
period (000) .............. $ 8,785 $10,514 $54,938 $ 36,296 $ 25,604 $28,225
Ratios of expenses to average
net assets ................. .70%(a) .72%(a) .64%(a) .66%(a) .83%(a) 1.10%(a)(b)
Ratios of net investment income
to average net assets ..... 6.05% 6.59% 5.86% 6.70% 7.81% 8.50%(b)
Portfolio turnover rate ..... 77% 86% 65% 47% 21% 3%(c)
<FN>
(a) Without the waiver of advisory, administration and custody fees and without
the reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Government Securities Portfolio would have been
2.05%, 1.22%, 1.10%, 1.22% and 1.22% for the years ended August 31, 1996,
1995, 1994, 1993 and 1992, respectively, and 1.28% annualized for the
period ended August 31, 1991.
(b) Annualized.
(c) Not annualized.
(d) Sales load not reflected in total return.
(e) Financial Highlights relate solely to the RBB Class of Shares within the portfolio.
[/FN]
</TABLE>
6
<PAGE>
RBB FAMILY CLASSES
THE RBB FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS(c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
operations:
Net investment income ............. 0.0465 0.0482 0.0273 0.0238 0.0370
Net gains (losses) on
securities (both realized
and unrealized) ................. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0465 0.0482 0.0273 0.0238 0.0377
-------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment Income) .............. (0.0465) (0.0482) (0.0273) (0.0238) (0.0370)
Distributions (from
capital gains) .................. -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ........... (0.0465) (0.0482) (0.0273) (0.0238) (0.0377)
-------- -------- -------- -------- --------
Net asset value, end of
period ............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ......................... 4.76% 4.93% 2.76% 2.41% 3.84%
Ratios/Supplemental Data
Net assets, end of period (000) ... $ 61 $ 55 $ 45 $ 58 $ 74
Ratios of expenses to
average net assets .............. 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a)
Ratios of net investment
income to average net
assets .......................... 4.65% 4.82% 2.73% 2.38% 3.70%
MONEY MARKET PORTFOLIO
------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 1989
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of period ............... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment
operations:
Net investment income ............. 0.0621 0.0757 0.0775
Net gains (losses) on
securities (both realized
and unrealized) ................. -- -- --
-------- -------- --------
Total from investment
operations .................. 0.0621 0.0757 0.0775
-------- -------- --------
Less distributions
Dividends (from net
investment Income) .............. (0.0621) (0.0757) (0.0775)
Distributions (from
capital gains) .................. -- -- --
-------- -------- --------
Total distributions ........... (0.0621) (0.0757) (0.0775)
-------- -------- --------
Net asset value, end of
period ............................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return ......................... 6.40% 7.84% 8.74%(b)
Ratios/Supplemental Data
Net assets, end of period (000) ... $ 109 $ 437 $ 39
Ratios of expenses to
average net assets .............. 1.00%(a) 1.00%(a) .98%(a)(b)
Ratios of net investment
income to average net
assets .......................... 6.21% 7.57% 8.57%(b)
<FN>
(a) Without the waiver of advisory and transfer agency 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 18.53%,
17.57%, 14.62%, 10.62%, 4.81%, 6.48% and 4.13% for the years ended August
31, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively and 52.80%
annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the RBB Class of Shares within the
portfolio.
</FN>
</TABLE>
7
<PAGE>
RBB FAMILY CLASSES
THE RBB FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from Investment
operations:
Net investment income ......... 0.0272 0.0279 0.0172 0.0172 0.0264
Net gains (losses) on
securities (both realized
and unrealized) ............. -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations .............. 0.0272 0.0279 0.0172 0.0172 0.0264
-------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income) .......... (0.0272) (0.0279) (0.0172) (0.0172) (0.0264)
Distributions (from
capital gains) .............. -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ....... (0.0272) (0.0279) (0.0172) (0.0172) (0.0264)
-------- -------- -------- -------- --------
Net asset value, end of
period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ..................... 2.76% 2.82% 1.73% 1.73% 2.67%
Ratios/Supplemental Data
Net assets, end of period (000) $ 5 $ 5 $ 5 $ 6 $ 4
Ratios of expenses to
average net assets .......... 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a)
Ratios of net investment
income to average
net assets .................. 2.72% 2.79% 1.72% 1.72% 2.64%
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 1989
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of period ........... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from Investment
operations:
Net investment income ......... 0.0406 0.0504 0.0603
Net gains (losses) on
securities (both realized
and unrealized) ............. -- -- --
-------- -------- --------
Total from investment
operations .............. 0.0406 0.0504 0.0603
-------- -------- --------
Less distributions
Dividends (from net
investment income) .......... (0.0406) (0.0504) (.0603)
Distributions (from
capital gains) .............. -- -- --
-------- -------- --------
Total distributions ....... (0.0406) (0.0504) (0.0603)
-------- -------- --------
Net asset value, end of
period ........................ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return ..................... 4.14% 5.16% 6.74%(b)
Ratios/Supplemental Data
Net assets, end of period (000) $ 2 $ 9 $ 0
Ratios of expenses to
average net assets .......... .99%(a) 1.00%(a) --%(a)(b)
Ratios of net investment
income to average
net assets .................. 4.06% 5.04% 7.48%(b)
<FN>
(a) Without the waiver of advisory, administration and transfer agency fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the Municipal Money Market Portfolio
would have been 216.12%, 162.20%, 154.22%, 191.54%, 250.95%, 131.15% and
509.05%, for the years ended August 31, 1996, 1995, 1994, 1993, 1992, 1991
and 1990, respectively. The ratio of expenses to average net assets for the
Municipal Money Market Portfolio was not reported during the fiscal period
ended August 31, 1989 as no shares of the RBB Class of that portfolio had
been sold to the public.
(b) Annualized.
(c) Financial Highlights relate solely to the RBB Class of Shares within the
portfolio.
[/FN]
</TABLE>
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
GOVERNMENT SECURITIES PORTFOLIO
The objective of the Government Securities Portfolio is to provide the
highest level of current income consistent with liquidity and a low risk to
principal from a portfolio of U.S. Government obligations. To attain its
objective, the Portfolio intends to invest in obligations issued or guaranteed
by the U.S. Treasury or the agencies or instrumentalities of the U.S.
Government.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase U.S. Government
agency and instrumentality obligations which are debt securities issued by U.S.
Government-sponsored enterprises and Federal agencies. Some obligations of
agencies and instrumentalities of the U.S. Government are supported by the full
faith and credit of the U.S. or by U.S. Treasury guarantees, such as securities
of the Government National Mortgage Association and the Federal Housing
Authority; others, by the right of the issuer to borrow from the U.S. Treasury,
such as securities of the Federal Home Loan Mortgage Corporation and others,
only by the credit of the agency or instrumentality issuing the obligation, such
as securities of the Federal National Mortgage Association and the Federal Loan
Banks.
During ordinary market conditions, at least 90% of the Portfolio's net
assets will be invested in obligations issued or guaranteed by the U.S. Treasury
or the agencies or instrumentalities of the U.S. Government, including options
and futures on such obligations. The maturities of U.S. Government securities
usually range from three months to thirty years. The Portfolio will at all times
invest at least 65% of its assets in such obligations, not including options and
futures on such obligations. The Portfolio's investment adviser may adjust the
average maturity of the Portfolio from time to time depending on its assessment
of relative yields of securities of different maturities and its expectations of
future changes in interest rates. Thus, at certain times the average maturity of
the Portfolio may be relatively short (under one year to five years, for
example) and at other times may be relatively long (more than 10 years, for
example). The obligations in which the Portfolio invests may not yield as high a
level of current income as lower grade obligations.
HEDGING INVESTMENTS. At such times as the Portfolio's investment adviser
deems it appropriate and consistent with the investment objective of the
Portfolio, the Portfolio may write covered call options on U.S. Government
obligations which are traded on a national securities exchange. The Portfolio
may also purchase and sell (i) options on U.S. Government obligations, (ii)
interest rate futures contracts, and (iii) options on interest rate futures
contracts. The purpose of such transactions is to hedge against changes in the
market value of securities in the Portfolio caused by fluctuating interest
rates, and to close out or offset its existing positions in such futures
contracts or options as described below. Such instruments will not be used for
speculation.
OPTIONS. The Portfolio may purchase options issued by the Options Clearing
Corporation on U.S. Treasury bonds, notes and bills. Such options give the
Portfolio the right for a fixed period of time to sell (in the case of the
purchase of a put option) or to buy (in the case of the purchase of a call
option) the number of units of the underlying obligation covered by the option
at a fixed or determinable exercise price. Buying a put hedges against the risk
of rising interest rates. Buying a call hedges against a market advance when the
Portfolio is not fully invested. Prior to its expiration, a put call option may
be sold in a closing sale transaction. Gain or loss from the sale will depend on
whether the amount received is more or less than the premium paid for the option
plus the related transaction costs.
9
<PAGE>
The Portfolio also may write (sell) put or call options but only if such
options are covered, and such options remain covered so long as the Portfolio is
obligated as a writer of the option (seller). A call option is "covered" if the
Portfolio owns the underlying security covered by the call. A put option is
"covered" if the Portfolio maintains in a segregated account with its custodian
cash, U.S. Treasury bills or other high-grade short-term obligations with a
value equal to the exercise price. If a "covered" call or put option expires
unexercised, the writer realizes a gain in the amount of the premium received.
If the covered call is exercised, the writer realizes a gain or loss from the
sale or purchase of the underlying security with the proceeds to the writer
being increased by the amount of the premium. If the covered put is exercised,
the writer's cost of purchasing the underlying security is reduced by the amount
of the premium. Prior to its expiration, a put or call option may be purchased
in a closing sale transaction and gain or loss from the sale will depend on
whether the amount paid is more or less than the premium received for the option
plus the related transaction costs.
Options are subject to certain risks, including the risk of imperfect
correlation between the option and the Portfolio's other investments and the
risk that there might not be a liquid secondary market for the option. In
general, options whose strike prices are close to their underlying instruments'
current value will have the highest trading volume, while options whose strike
prices are further away may be less liquid. The liquidity of options may also be
affected if options exchanges impose trading halts, particularly when markets
are volatile.
FUTURES CONTRACTS. As noted above, the Portfolio may invest in financial
futures contracts. Financial futures contracts obligate the seller to deliver a
specific type of security called for in the contract, at a specified future
time, and for a specified price. Financial futures contracts may be satisfied by
actual delivery of the securities or, more typically, by entering into an
offsetting transaction. There are risks that are associated with the use of
futures contracts for hedging purposes. In certain market conditions, as in a
rising interest rate environment, sales of futures contracts may not completely
offset a decline in value of the portfolio securities against which the futures
contracts are being sold. In the futures market, it may not always be possible
to execute a buy or sell order at the desired price, or to close out an open
position due to market conditions, limits on open positions, and/or daily price
fluctuations. Risks in the use of futures contracts also result from the
possibility that changes in the market interest rates may differ substantially
from the changes anticipated by the Portfolio's investment adviser when hedge
positions were established.
OPTIONS ON FUTURES. The Portfolio may purchase and write call and put
options on futures contracts which are traded on a U.S. exchange or board of
exchange and enter into closing transactions with respect to such options to
terminate an existing position. An option on a futures contract gives the
purchaser the right, in return for the premium paid, to assume a position in a
futures contract. The Portfolio may use options on futures contracts in
connection with hedging strategies. The purchase of put options on futures
contracts is a means of hedging against the risk of rising interest rates. The
purchase of call options on futures contracts is a means of hedging against a
market advance when the Portfolio is not fully invested.
There is no assurance that the Portfolio will be able to close out its
financial futures positions at any time, in which case it would be required to
maintain the margin deposits on the contract. There can be no assurance that
hedging transactions will be successful, as there may be imperfect correlations
(or no correlations) between movements in the prices of the futures contracts
and of the debt securities being hedged, or price distortions due to market
conditions in the futures markets. Such imperfect correlations could have an
impact on the Portfolio's ability to effectively hedge its securities.
The Portfolio will not enter into financial futures contracts or related
options contracts (valued at market value) if, immediately thereafter, more than
50% of the value of the Portfolio's total assets would be so hedged. The 50%
investment restriction is not a fundamental policy of the Portfolio and may be
changed without a shareholder vote by the Board of Directors. Restrictions
imposed by the Internal Revenue Code may also limit the Portfolio's ability to
engage in hedging transactions.
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SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when it believes that the price of a security may decline,
causing a decline in the value of a security owned by the Portfolio (or a
security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the
Portfolio's custodian or a qualified sub-custodian. While the short sale is
open, the Portfolio will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities.
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 when 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.
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 the creditworthiness of a seller 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.
LENDING OF PORTFOLIO SECURITIES. The Portfolio may also lend its portfolio
securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks.
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PORTFOLIO TURNOVER. The Portfolio will actively use trading to benefit from
yield disparities among different issues of U.S. Government securities or
otherwise to achieve its investment objective and policies. The Portfolio,
therefore, may be subject to a greater degree of turnover and, thus, a higher
incidence of short-term capital gains taxable as ordinary income than might be
expected from portfolios which invest substantially all of their funds on a
long-term basis, and correspondingly larger mark-up charges can be expected to
be borne by the Portfolio. Federal income tax law may restrict the extent to
which the Portfolio may engage in short-term trading activities. See "Taxes" in
the Statement of Additional Information for a discussion of such federal income
tax law restrictions. The Portfolio anticipates that the annual turnover in the
Portfolio will not be in excess of 200%. A 200% turnover rate is greater than
that of many other investment companies.
ILLIQUID SECURITIES. The Government Securities Portfolio will not invest
more than 15% of its net assets in illiquid securities, including repurchase
agreements which have a maturity of longer than seven days 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 Government Securities 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 outstanding Shares of the Fund
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 Government Securities Portfolio will be achieved.
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
relative stability of principal. Portfolio obligations held by the Money Market
Portfolio have remaining maturities of 397 calendar days or less (except that
portfolio securities which are subject to repurchase agreements may bear
maturities exceeding 397 calendar days). 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 which meet certain ratings criteria and present minimal credit
risks as determined by the investment adviser pursuant to guidelines adopted by
the Board of Directors. 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 issued by U.S.
or foreign banks or savings institutions having total assets at the time of
purchase in excess of $1 billion. Investment in obligations of foreign banks or
foreign branches of U.S. banks may entail risks that are different from those of
investments in 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 this Prospectus. The Portfolio may also
purchase unrated commercial paper provided that
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<PAGE>
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 major corporations without registration under the
Securities Act of 1933 (the "1933 Act") in reliance on the exemption from such
registration afforded by Section 3(a)(3) thereof, and commercial paper issued in
reliance on the so-called "private placement" exemption from registration which
is afforded by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2)
paper is restricted as to disposition under the Federal securities laws in that
any resale must similarly be made in an exempt transaction. Section 4(2) paper
is normally resold to other institutional investors through or with the
assistance of investment dealers who make a market in Section 4(2) paper, thus
providing liquidity.
Commercial paper purchased by the Portfolio may include instruments issued
by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there may be no active secondary market in the
notes, the Portfolio will be able (at any time or during 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"). For a description of
repurchase agreements, see "Investment Objectives and Policies--Government
Securities Portfolio."
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities.
Obligations which may be so purchased are described under "Investment Objectives
and Policies--Government Securities Portfolio."
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 purpose. See "Investment Limitations."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. At the time the
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued inter-
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est) and will subsequently monitor the account to ensure that such value is
maintained. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Portfolio may decline below the price of the
securities the Portfolio is obligated to repurchase. Reverse repurchase
agreements are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act".)
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 short-term Municipal Obligations issued
by state and local governmental issuers, the interest on which may be taxable or
tax-exempt for Federal income tax purposes, provided that such obligations carry
yields that are competitive with those of other types of Money Market
Instruments of comparable quality. For a more complete discussion of Municipal
Obligations, see "Investment Objectives and Policies--Municipal Money Market
Portfolio." In addition, the Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held by it. 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.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio securities on
a "when-issued" basis such as described under "Investment Objectives and
Policies--Government Securities Portfolio."
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolios' investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two highest rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs")
(e.g., commercial paper rated "A-1" or "A-2" by S&P, (3) securities that are
rated at the time of purchase by the only NRSRO rating the security in one of
its two highest rating categories for such securities and (4) securities that
are not rated and are issued by an issuer that does not have comparable
obligations rated by an NRSRO ("Unrated Securities"), provided that such
securities are determined to be of comparable quality to eligible rated
securities. For a more complete description of eligible securities, see
"Investment Objectives and Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
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<PAGE>
The Money Market Portfolio's investment objectives 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 the Portfolio's outstanding Shares. 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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which meet certain ratings criteria and are determined by the
Portfolio's investment adviser to present minimal credit risks pursuant to
guidelines established by the Fund's Board of Directors and which at the time of
purchase are considered to be "high grade"--e.g., rated "A" or higher by S&P or
"A" or higher by Moody's in the case of bonds; rated "SP-1" by S&P or "MIG-1" by
Moody's in the case of notes; rated "VMIG-1" by Moody's in the case of variable
rate demand notes; or rated "A-1" by S&P or "Prime-1" by Moody's in the case of
tax-exempt commercial paper. In addition, the Portfolio may invest in "high
quality" notes and tax-exempt commercial paper rated "MIG-2," "VMIG-2," or
"Prime-2" by Moody's or "A-2" by S&P if deemed advisable by the Portfolio's
investment adviser. The Portfolio may also purchase securities that are unrated
at the time of purchase provided that the securities are determined to be of
comparable quality by the Portfolio's investment adviser pursuant to guidelines
approved by the Fund's Board of Directors. The applicable Municipal Obligation
ratings are described in the Appendix to this Prospectus.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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.
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<PAGE>
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 pursuant to guidelines adopted by the Fund's Board
of Directors. Where necessary to ensure that a note is of "high quality," the
Portfolio will require that the issuer's obligation to pay the principal of the
note be backed by an unconditional bank letter or line of credit, guarantee or
commitment to lend. While there may be no active secondary market with respect
to a particular variable rate demand note purchased by a Portfolio, the
Portfolio may, upon the notice specified in the note, demand payment of the
principal of the note at any time or during specified periods not exceeding one
year, depending upon the instrument involved. The absence of such an active
secondary market, however, could make it difficult for the Portfolio to dispose
of a variable rate demand note if the issuer defaulted on its payment obligation
or during the periods that the Portfolio is not entitled to exercise its demand
rights. The Portfolio could, for this or other reasons, suffer a loss to the
extent of the default. The Portfolio invests in variable rate demand notes only
when the Portfolio's investment adviser deems the investment to involve minimal
credit risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on certain private activity bonds issued after
August 7, 1986 that is received by taxpayers subject to alternative minimum tax
is taxable. The Act has generally not changed the tax treatment of bonds issued
to finance governmental operations. As used in this Prospectus, the term
"private activity bonds" also includes industrial development revenue bonds
issued prior to the effective date of the provisions of the Tax Reform Act of
1986. Investors should also be aware of the possibility of state and local
alternative minimum or minimum income tax liability on interest from Alternative
Minimum Tax Securities (as defined below).
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, such Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Government Securities Portfolio."
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."
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations
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<PAGE>
which interest includes a tender option, demand or other feature, allowing the
Portfolio to tender the underlying Municipal Obligation to a third party at
periodic intervals and to receive the principal amount thereof. In some cases,
Municipal Obligations are represented by custodial receipts evidencing rights to
future principal or interest payments, or both, on underlying municipal
securities held by a custodian and such receipts include the option to tender
the underlying securities to the sponsor (usually a bank, broker-dealer or other
financial institution). Although the Internal Revenue Service has not ruled on
whether the interest received on derivative securities in the form of
participation interests or custodial receipts is Tax-Exempt Interest, opinions
relating to the validity of, and the tax-exempt status of payments received by,
the Portfolio from such derivative securities are rendered by counsel to the
respective sponsors of such derivatives and relied upon by the Portfolio in
purchasing such securities. Neither the Portfolio nor its investment adviser
will review the proceedings relating to the creation of any tax-exempt
derivative securities or the basis for such legal opinions.
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies -- Money Market Portfolio --Eligible
Securities".
ILLIQUID SECURITIES. The Municipal Money Market Portfolio will not invest
more than 10% of its net assets in illiquid securities, 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
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 Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
the affirmative vote of the holders of a majority of the Portfolio's outstanding
Shares. 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 Municipal
Money Market Portfolio will be achieved.
INVESTMENT LIMITATIONS
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No Portfolio may change the following investment limitations (with certain
exceptions, as noted below) without the affirmative vote of the holders of a
majority of a Portfolio's outstanding Shares. (A complete list of the investment
limitations that cannot be changed without such a vote of the shareholders is
contained in the Statement of Additional Information under "Investment
Objectives and Policies.")
GOVERNMENT SECURITIES PORTFOLIO. The Government Securities Portfolio may
not:
1. Purchase the 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 value 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 total assets may be invested
without regard to such limitations.
2. Borrow money, except from banks for temporary purposes 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% 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
17
<PAGE>
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.)
3. Purchase any securities which would cause, at the time of purchase,
25% or more of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in any industry, provided that there
is no limitation with respect to investments in U.S. Government
obligations.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under Federal income tax provisions applicable to regulated
investment companies.
In determining whether the Government Securities Portfolio has complied
with limitation 3 above, such Portfolio will not take into account the value of
options and futures.
MONEY MARKET PORTFOLIO. The Money Market Portfolio may not:
1. Purchase the 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 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 limitations.
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 than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
4. 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.
18
<PAGE>
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.
MUNICIPAL MONEY MARKET PORTFOLIO. The Municipal Money Market Portfolio may
not:
1. Purchase the securities of any 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
value of the Portfolio's 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 such
limitations.
2. Borrow money, except from banks for temporary purposes 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 the lesser of the dollar amounts
borrowed or 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,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
4. In addition, without the affirmative vote of the holders of a
majority of the affected Portfolio's outstanding Shares, the Municipal
Money Market Portfolio may not change its policy of investing, during
normal market conditions, at least 80% of its net assets in obligations the
interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
19
<PAGE>
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate nineteen separate investment portfolios. Each of
the RBB Family classes represents interests in one of the following such
investment portfolios: the Government Securities Portfolio, the Money Market
Portfolio and the Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809. PNC Bank serves as the sub-adviser for all Portfolios other than
the Government Securities Portfolio, which has no sub-adviser. PNC Bank and its
predecessors have been in the business of managing the investments of fiduciary
and other accounts in the Philadelphia area since 1847. PNC Bank 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 adviser to the Portfolios, PIMC is responsible for overall management of
the Portfolios, and is responsible for all purchases and sales of portfolio
securities for all Portfolios. PIMC also assists generally in supervising the
operations of the Portfolios, maintains the Portfolios' financial accounts and
records, and computes the Portfolios' net asset values and net income. PNC Bank,
as sub-adviser for all Portfolios other than the Government Securities
Portfolio, provides research and credit analysis and provides PIMC with certain
other services.
Robert J. Morgan is responsible for the day-to-day portfolio management of
the Government Securities Portfolio. Mr. Morgan is Assistant Vice President with
PIMC, where he has been employed since 1988. Previously, he was a Portfolio
Manager with Core States.
20
<PAGE>
For the services provided and expenses assumed by it, PIMC is entitled to
receive the following fees, computed daily and payable monthly based on a
Portfolio's average daily net assets:
PORTFOLIO ANNUAL RATE
---------------- ----------------
Money Market .................................... .45% of first $250 million
of net assets; .40% of
next $250 million of net
assets; and .35% of net
assets in excess of $500
million
Municipal Money Market ......................... .35% of first $250 million
of net assets; .30% of
next $250 million of net
assets; and .25% of net
assets in excess of $500
million.
Government Securities ........................... .40% of first $250 million
of net assets; .35% of
next $250 million of net
assets; and .30% of net
assets in excess of $500
million
PIMC may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee for any Portfolio. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fees paid by the Fund to PIMC with respect to a Portfolio. Such
sub-advisory fees have no effect on the advisory fees payable by a Portfolio to
PIMC. In addition, PIMC may from time to time enter into an agreement with one
of its affiliates pursuant to which it delegates some or all of its accounting
and administrative obligations under its advisory agreements with the Fund
relating to any Portfolio. Any such arrangement would have no effect on the
advisory fees payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1996, PIMC waived all
investment advisory fees payable to it with respect to the Government Securities
Portfolio. For the same year ended August 31, 1996, the Fund paid PIMC
investment advisory fees aggregating .20% of the average net assets of the Money
Market Portfolio, .05% of the average net assets of the Municipal Money Market
Portfolio, and PIMC waived approximately .17% and .28% of the average net assets
of the Money Market Portfolio and Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as administrator to the Government Securities Portfolio, and
the Municipal Money Market Portfolio. PFPC is an indirect, wholly owned
subsidiary of PNC Bank Corp. PFPC generally assists each of the Government
Securities and Municipal Money Market Portfolios in all aspects of its
administration and operations, including matters relating to the maintenance of
financial records and accounting. PFPC is entitled to an administration fee,
computed daily and payable monthly at an annual rate of .10% of each such
Portfolio's average daily net assets.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC 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 ("Authorized Dealers") for the provision of
certain shareholder support services to customers of such Authorized Dealers who
are shareholders of the Portfolios. The services provided and the fees payable
by the Fund for these services are described in the Statement of Additional
Information under "Investment Advisory, Distribution and Servicing
Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from their total income before
dividends are paid. These expenses include, but are not limited to, 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
Portfolios and
21
<PAGE>
their 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 of shares of the Fund, the expense of reports to shareholders,
shareholders' meetings and proxy solicitations that are not attributable to a
particular class of shares of the Fund, 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 adviser under its
investment advisory agreement with respect to a 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 are cited. Distribution expenses, transfer
agency expenses, expenses of preparation, printing and distributing
prospectuses, statements of additional information, proxy statements and reports
to shareholders, and registration fees, identified as belonging to a particular
class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were 2.05% of the average net assets of the RBB Family Class of the Government
Securities Portfolio (not taking into account waivers and reimbursements of
1.35%), were 18.53% of the average net assets of the RBB Family Class of the
Money Market Portfolio (not taking into account waivers and reimbursements of
17.53%) and were 216.12% of the average net assets of the RBB Family Class of
the Municipal Money Market Portfolio (not taking into account waivers and
reimbursements of 215.12%).
PORTFOLIO TRANSACTIONS
A Portfolio's adviser may consider a number of factors in determining which
brokers to use in purchasing or selling a Portfolio's securities. These factors,
which are more fully discussed in the Statement of Additional Information,
include, but are not limited to, research services, the reasonableness of
commissions and quality of services and execution. Transactions for the
Portfolios may be effected through Authorized Dealers, subject to the
requirements of best execution. A higher rate of turnover of a Portfolio's
securities may involve correspondingly higher transaction costs, which will be
borne directly by the Portfolio. A Portfolio may enter into brokerage
transactions with and pay brokerage commissions to brokers that are affiliated
persons (as such term is defined in the 1940 Act) provided that the terms of the
brokerage transactions comply with the provisions of the 1940 Act.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Counsellors Securities Inc. (the "Distributor"), a wholly owned subsidiary
of Warburg, with offices at 466 Lexington Avenue, New York, New York, acts as
distributor for each of the Classes pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Classes.
The Board of Directors of the Fund approved and adopted the Distribution
Contracts and separate Plans of Distributions for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each
22
<PAGE>
of the Plans, the Distributor is entitled to receive from the relevant Class a
distribution fee, which is accrued daily and paid monthly, of up to .65% on an
annualized basis of the average daily net assets of the relevant Class. The
actual amount of such compensation under the Plans is agreed upon by the Fund's
Board of Directors and by the Distributor. Under each of the Distribution
Contracts, the Distributor has agreed to accept compensation for its services
thereunder and under the relevant Plan in the amount of .40% of the average
daily net assets of the relevant Class on an annualized basis in any year. Such
compensation may be increased, up to the amount permitted in the Plan, with the
approval of the Fund's Board of Directors. Pursuant to the conditions of an
exemptive order granted by the Securities and Exchange Commission (the "SEC"),
the Distributor has agreed to waive its fee with respect to a Class covered by
such order on any day to the extent necessary to ensure that the fee required to
be accrued by such Class does not exceed the income of such Class on such day.
In addition, the Distributor may, in its discretion, from time to time waive
voluntarily all or any portion of its distribution fee.
Under the dealer agreements in effect with respect to the Classes, the
Distributor may reallocate up to all of the compensation it receives for its
services under the Distribution Contracts and the Plans to Authorized Dealers,
based upon the aggregate investment amounts maintained by customers of such
Authorized Dealers in each of the Portfolios. The Distributor may also reimburse
Authorized Dealers for other expenses incurred in the promotion of the sale of
Fund Shares. The Distributor and/or Authorized Dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Portfolios of the Fund as well
as for related direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Class the fee agreed to
under the relevant Distribution Contracts. None of the Plans obligates the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under a Plan on behalf of the relevant Class.
Thus, under each of the Plans, even if the Distributor's actual expenses exceed
the fee payable to the Distributor thereunder at any given time, the Fund will
not be obligated to pay more than that fee. If the Distributor's expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee.
The Plans in effect with respect to the Classes have been approved by
shareholders of the relevant Class. Under the terms of Rule 12b-1, each will
remain in effect only if approved at least annually by the Fund's Board of
Directors, including those directors who are not "interested persons" of the
Fund as that term is defined in the 1940 Act and who have no direct or indirect
financial interest in the operation of the Plan or in any agreements related
thereto ("12b-1 Directors"). Each of the Plans may be terminated at any time by
vote of a majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Class. The fee set forth above
will be paid by the Fund on behalf of the relevant Class to the Distributor
unless and until the relevant Plan is terminated or not renewed.
HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------
GENERAL
Shares representing interests in the Non-Money Market Portfolio ("Non-Money
Market Shares") and Shares representing interests in the Money Market Portfolios
(collectively, "Money Market Shares") are offered continuously for sale by the
Distributor and may be purchased through Authorized Dealers. Both Non-Money
Market Shares and Money Market Shares may be purchased initially by completing
the application included in this Prospectus and forwarding the application,
through the designated Authorized Dealer, to the Fund's transfer agent, PFPC.
Subsequent purchases of Non-Money Market Shares and Money Market Shares may be
effected through an Authorized Dealer or by mailing a check or Federal Reserve
Draft, payable to the order of "The RBB Family" c/o PFPC, P.0. Box 8916,
Wilmington, Delaware 19899. The name of the Portfolio for which Shares are being
purchased must also appear on the check or
23
<PAGE>
Federal Reserve Draft. Federal Reserve Drafts are available at national banks or
any state bank which is a member of the Federal Reserve System. Initial
investments in any Portfolio must be at least $1,000 and subsequent investments
must be at least $100. The Fund reserves the right to reject any purchase order.
Non-Money Market Shares may be purchased on any Business Day. A "Business
Day" is any day that the New York Stock Exchange (the "NYSE") is open for
business. Currently, the NYSE is closed on weekends and New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day (observed), Labor
Day, Thanksgiving Day and Christmas Day (observed). Non-Money Market Shares are
offered at the next determined net asset value per share, plus a sales load as
described below. Money Market Shares may be purchased on any Money Market
Business Day. A "Money Market Business Day" is any day that both the NYSE and
the Federal Reserve Bank of Philadelphia (the "FRB") are open. 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. Money Market Shares are offered at the net asset
value per Share next determined after the transfer agent's receipt of a purchase
order, without the imposition of a sales charge.
The price paid for Non-Money Market Shares purchased initially or acquired
through the exercise of an exchange privilege is based on the net asset value
next computed (plus a sales charge, if no sales charge has been previously
imposed with respect to such Shares) after an order is received by the Fund's
transfer agent. See "Exchange Privilege." Such price will be the net asset value
next computed (plus any applicable sales charge) after an order is received by
an Authorized Dealer provided such order is transmitted to and received by the
Fund's transfer agent prior to its close of business on such day. It is the
responsibility of Authorized Dealers to transmit orders received by them to the
Fund's transfer agent so they will be received prior to such time. Orders
received by the Fund's transfer agent from an Authorized Dealer after its close
of business are priced at the net asset value next determined (plus any
applicable sales charge) on the following Business Day. Orders of less than $500
are mailed by an Authorized Dealer. In those cases where an investor pays for
Shares by check, the purchase will be effected at the net asset value (plus any
applicable sales charge) next determined after the Fund's transfer agent
receives the order and Federal Funds are available to the Fund, which is
generally two Business Days after a purchase order is received.
Shareholders whose shares are held in the street name account of an
Authorized Dealer and who desire to transfer such shares to the street name
account of another Authorized Dealer should contact their current Authorized
Dealer.
SALES CHARGES--GENERAL. The following table shows sales charges generally
applicable to Non-Money Market Shares at various investment levels. Sales
charges are reduced on a graduated scale on single purchases of Non-Money Market
Shares of $100,000 or more. Sales charges are imposed regardless of whether
Non-Money Market Shares are purchased through Authorized Dealers or by direct
investment. During special promotions, as much as the entire sales load may be
reallowed to Authorized Dealers, and at such times such Authorized Dealers may,
by virtue of such reallowance, be deemed to be "underwriters" under the 1933
Act.
24
<PAGE>
<TABLE>
<CAPTION>
SALES SALES REALLOWANCE
CHARGE AS CHARGE AS TO AUTHORIZED
PERCENTAGE PERCENTAGE DEALERS (AS
OF NET OF OFFERING % OF OFFERING
AMOUNT OF TRANSACTION AT OFFERING PRICE ASSET VALUE PRICE PRICE)
- ------------------------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Less than $100,000 .................................... 4.99% 4.75% 4.25%
$ 100,000 but less than $250,000 .................... 4.17 4.00 3.50
$ 250,000 but less than $500,000 .................... 3.09 3.00 2.50
$ 500,000 but less than $1,000,000 .................. 2.04 2.00 1.60
$1,000,000 but less than $2,000,000 ................... 1.01 1.00 .80
$2,000,000 but less than $4,000,000 ................... .50 .50 .40
$4,000,000 and above .................................. -0- -0- -0-
</TABLE>
The foregoing schedule of sales charges applies to purchases of Non-Money
Market Shares made at any one time by the following: (a) any individual; (b) any
individual, his or her spouse, and their children under the age of 21; (c) a
trustee or fiduciary of a single trust estate or single fiduciary account; or
(d) any organized group which has been in existence for more than six months,
provided that it is not organized for the purpose of buying redeemable
securities of a registered investment company, and provided that the purchase is
made through a central administration, or through a single dealer, or by other
means which result in economy of sales effort or expense. An organized group
does not include a group of individuals whose sole organizational connection is
participation as credit card holders of a company, policyholders of an insurance
company, customers of either a bank or broker-dealer or clients of an investment
adviser. Purchases made by an organized group may include, for example, a
trustee or other fiduciary purchasing for a single fiduciary account or other
employee benefit plan purchases made through a payroll deduction plan.
The foregoing schedule applies to single purchases, concurrent purchases of
Non-Money Market Shares of two or more of the RBB Family Classes, and to
purchases made under a Letter of Intent or pursuant to the Right of
Accumulation, both of which plans are described below.
RIGHT OF ACCUMULATION. Under the Right of Accumulation, the current value
of an investor's existing Non-Money Market Shares may be combined with the
amount of the investor's current purchase of Non-Money Market Shares in
determining the sales charge. IN ORDER TO RECEIVE THE CUMULATIVE QUANTITY
REDUCTION, PREVIOUS PURCHASES OF NON-MONEY MARKET SHARES MUST BE CALLED TO THE
ATTENTION OF THE FUND'S TRANSFER AGENT AT THE TIME OF THE CURRENT PURCHASE.
LETTER OF INTENT. An investor may qualify for a reduced sales charge on a
purchase of Non-Money Market Shares immediately by signing a nonbinding Letter
of Intent stating the investor's intention to invest in Non-Money Market Shares
during the next 13 months a specified amount which, if made at one time, would
qualify for a reduced sales charge. Any redemptions made during the 13-month
period will be subtracted from the amount of purchases in determining whether
the Letter of Intent has been completed. During the term of a Letter of Intent,
the Fund's transfer agent will hold Non-Money Market Shares representing 5% of
the indicated amount in escrow for payment of a higher sales load if the full
amount indicated in the Letter of Intent is not purchased. The escrowed
Non-Money Market Shares will be released when the full amount indicated has been
purchased. If the full amount indicated is not purchased within the 13-month
period, the investor will be required to pay an amount equal to the difference
in the dollar amount of sales charge actually paid and the amount of sales
charge the investor would have had to pay on his or her aggregate purchases if
the total of such purchases had been made at a single time.
25
<PAGE>
The following persons associated with the Fund, the Distributor, Warburg,
or PIMC, PNC Bank or PFPC may buy Non-Money Market Shares without paying a sales
charge: (a) officers, directors and partners; (b) employees and retirees; (c)
registered representatives of Authorized Dealers and of the Distributor; (d)
spouses or children of any such persons; and (e) any trust, pension,
profit-sharing or other benefit plan for any of the persons set forth in (a)
through (d) above. The following persons may also buy Non-Money Market Shares
without paying a sales charge, provided any such person informs the Portfolio's
transfer agent at the time of purchase that it believes it qualifies for a sales
charge waiver: (a) a trust department of a bank or law firm; (b) a 501(c)(3)
organization and a charitable remainder trust or a life income pool established
for the benefit of a charitable organization; (c) a registered investment
adviser for its own account or on behalf of its clients; (d) an employee benefit
or retirement plan (including 401(k) plans, 403(b) plans, 457 plans,
profit-sharing plans, SEP-IRAs and qualified plans for self-employed
individuals, but excluding regular IRAs, IRA transfers, IRA rollovers and
non-working spousal IRAs); and (e) a financial planner that charges a fee and
makes the qualifying purchases through a financial institution's net asset value
purchase program (provided the purchase program is recognized by the Fund, and
the Portfolio whose shares are being purchased is listed as part of the purchase
program). In addition, Warburg may purchase Non-Money Market Shares on behalf of
the investment companies, employee benefit plans, endowment funds, foundations
and other institutions and individuals for which it provides investment services
without paying a sales charge.
AUTOMATIC INVESTING
Additional investments in Non-Money Market Shares may be made automatically
by authorizing the Fund's transfer agent to withdraw funds from your bank
account. Investors desiring to participate in the automatic investing program
should call the Fund's transfer agent, PFPC, at (800) 430-9618 to obtain the
appropriate forms.
EXCHANGE PRIVILEGE
A shareholder may exchange Shares of any one of the RBB Family Classes for
Shares of any other of the RBB Family Classes. Such exchange will be effected at
the net asset value of the exchanged Class and the net asset value (plus any
applicable sales charges in the case of exchanges for Non-Money Market Shares
for which a sales charge has not previously been paid) of the Class to be
acquired next determined after the transfer agent's receipt of a request for an
exchange. REQUESTS FOR EXCHANGES BETWEEN NON-MONEY MARKET CLASSES AND MONEY
MARKET CLASSES WILL BE HONORED ONLY ON MONEY MARKET BUSINESS DAYS. No exchange
fee is currently imposed on exchanges, although the Fund reserves the right to
impose a $5.00 administrative fee for each exchange. However, a sales charge is
currently imposed on exchanges of Money Market Shares for Non-Money Market
Shares when no sales charge has been previously imposed with respect to such
Shares. An exchange of Shares will be treated as a sale for Federal income tax
purposes. See "Taxes."
A shareholder wishing to make an exchange may do so by sending a written
request to the Fund's transfer agent. In the case of shareholders holding share
certificates, the certificates must accompany the request for an exchange.
Shareholders are automatically provided with telephone exchange privileges when
opening an account, unless they indicate on the Application that they do not
wish to use this privilege. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT
ELIGIBLE TO EXCHANGE SHARES BY TELEPHONE BECAUSE SHARE CERTIFICATES MUST
ACCOMPANY ALL EXCHANGE REQUESTS. To add a telephone exchange feature to an
existing account that previously did not provide for this option, a Telephone
Exchange Authorization Form must be filed with PFPC. This form is available from
PFPC. Once this election has been made, the shareholder may simply contact PFPC
by telephone to request the exchange (800) 430-9618 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. Neither the
Fund nor PFPC will be liable for any loss, liability, cost or expense for
following the Fund's telephone transaction procedures described below or for
following instructions communicated by telephone that it reasonably believes to
be genuine.
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<PAGE>
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) permitting exchanges only if the two account registrations are identical;
(5) 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; (6) 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 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.
If the exchanging shareholder does not currently own Shares of the Class
whose Shares are being acquired, a new account will be established with the same
registration, dividend and capital gain options and Authorized Dealer of record
as the account from which shares are exchanged, unless otherwise specified in
writing by the shareholder with all signatures guaranteed by a commercial bank
or trust company or a member firm of a national securities exchange. In order to
establish a systematic withdrawal plan 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, upon 60 days written notice to shareholders.
If an exchange is to a new RBB Family Class, the dollar value of Shares
acquired must equal or exceed the Fund's minimum for a new account; if to an
existing account, the dollar value must equal or exceed the Fund's minimum for
subsequent investments. If any amount remains in the RBB Class from which the
exchange is being made, such amount must not drop below the minimum account
value required by the Fund.
RETIREMENT PLANS
RBB Family 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 an Authorized Dealer. To determine whether the benefits of an IRA
are available and/or appropriate, a shareholder should consult with a tax
adviser.
HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------
NORMAL REDEMPTION
Shareholders may redeem for cash some or all of their Shares of the Fund at
any time. To do so, a written request in proper form must be sent directly to
The RBB Family c/o PFPC, P.O. Box 8916, Wilmington, Delaware 19899. There is no
charge for a redemption. Shareholders may also place redemption requests through
an Authorized Dealer, but such Authorized Dealer might charge a fee for this
service.
A request for redemption must be signed by all persons in whose names the
Shares are registered. Signatures must conform exactly to the account
registration. If the proceeds of the redemption would exceed $10,000, or if the
proceeds are not to be paid to the record owner at the record address, or if the
shareholder is a corporation, partnership, trust or fiduciary, signature(s) must
be guaranteed. A signature guarantee verifies the authenticity of your signa-
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<PAGE>
ture 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). You may call the Transfer Agent at (800) 430-9618 to
determine whether the entity that will guarantee the signature is an eligible
guarantor.
Generally, a properly signed written request with any required signature
guarantee is all that is required for a redemption. In some cases, however,
other documents may be necessary. For example, the Fund will issue share
certificates for any of the Classes if a written request has been made to the
Fund's transfer agent. In the case of shareholders holding share certificates,
the certificates for the shares being redeemed must accompany the redemption
request. Additional documentary evidence of authority is also required by the
Fund's transfer agent in the event redemption is requested by a corporation,
partnership, trust, fiduciary, executor or administrator.
REDEMPTION BY CHECK
An investor holding Shares of a Money Market Class may request that the
Fund provide redemption checks drawn on such Money Market Class. SHAREHOLDERS
HOLDING SHARE CERTIFICATES FOR MONEY MARKET SHARES ARE NOT ELIGIBLE FOR CHECK
REDEMPTION PRIVILEGES BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION
REQUESTS. Checks will be sent only to the registered owner(s) and only to the
address of record. Investors may issue checks made payable to the order of any
person in the amount of $100 or more. The redemption is not effective until the
check is processed and cleared by the transfer agent, and dividends are earned
until the redemption is effected. Because dividends accrue daily, a check should
not be used to close an account as a small balance is likely to result. There is
no charge to the investor for redemption by check. If a shareholder who has
check redemption privileges exchanges funds from one Money Market Class into
another Money Market Class, he or she will automatically receive a checkbook for
the new account (allow three to four weeks for delivery). 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. This check redemption privilege
applies only to Shares of the Money Market Portfolios.
SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of at least $10,000, you may establish a
Systematic Withdrawal Plan for any of the RBB Family Classes and receive regular
periodic payments. A request to establish a Systematic Withdrawal Plan must be
submitted in writing to the Fund's transfer agent, PFPC, P.O. Box 8916,
Wilmington, Delaware 19899. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT
ELIGIBLE TO ESTABLISH A SYSTEMATIC WITHDRAWAL PLAN BECAUSE SHARE CERTIFICATES
MUST ACCOMPANY ALL WITHDRAWAL REQUESTS. Each withdrawal redemption will be
processed about the 25th of the month and mailed as soon as possible thereafter.
There are no service charges for maintenance; the minimum amount that you may
withdraw each period is $100. (This is merely the minimum amount allowed and
should not be mistaken for a recommended amount.) The holder of a Systematic
Withdrawal Plan will have any income dividends and any capital gains
distributions reinvested in full and fractional shares at net asset value. To
provide funds for payment, shares of the appropriate Class will be redeemed in
such amount as is necessary at the redemption price, which is net asset value
next determined after the Fund's receipt of a redemption request. Redemption of
shares may reduce or possibly exhaust the Shares in your account, particularly
in the event of a market decline. As with other redemptions, a redemption to
make a withdrawal payment is a sale for Federal income tax purposes. Payments
made pursuant to a Systematic Withdrawal Plan cannot be considered as actual
yield or income since part of such payments may be a return of capital.
The maintenance of a Systematic Withdrawal Plan for a Class concurrently
with purchases of additional shares of that Class would be disadvantageous
because of the sales commission involved in the additional purchases. You will
ordinarily not be allowed to make additional investments of less than the
aggregate annual withdrawals under the Systematic Withdrawal Plan during the
time you have the plan in effect and, while a Systematic Withdrawal Plan is in
effect, you may not make periodic investments under Automatic Investing. You
will receive a confirmation of each
28
<PAGE>
transaction showing the sources of the payment and the share and cash balance
remaining in your plan. The plan may be terminated on written notice by the
shareholder or by the Fund with respect to the applicable Class and it will
terminate automatically if all Shares are liquidated or withdrawn from the
account or upon the death or incapacity of the shareholder. You may change the
amount and schedule of withdrawal payments or suspend such payments by giving
written notice to the Fund's transfer agent at least seven business days prior
to the end of the month preceding a scheduled payment.
INVOLUNTARY REDEMPTION
The Fund reserves the right to redeem a shareholder's account in any Class
at any time the net asset value of the account in such Class falls below $500 as
the result of a redemption or an exchange request. Shareholders will be notified
in writing that the value of their account in a Class is less than $500 and will
be allowed 30 days to make additional investments before the redemption is
processed.
PAYMENT OF REDEMPTION PROCEEDS
In all cases, the redemption price is the net asset value per share next
determined after the request for redemption is received in proper form by the
Fund's transfer agent. Payment for Shares redeemed is made by check mailed
within seven days after acceptance by the Fund's transfer agent of the request
and any other necessary documents in proper order. Such payment may be postponed
or the right of redemption suspended as provided by the rules of the SEC. If the
Shares to be redeemed have been recently purchased by check, the Fund's transfer
agent may delay mailing a redemption check, which may be a period of up to 15
days, pending a determination that the check has cleared.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value for each Portfolio is calculated by adding the value of
all its securities to cash and other assets, deducting its actual and accrued
liabilities and dividing by the total number of Shares outstanding. The net
asset value of the Non-Money Market Portfolio is calculated as of 4:00 p.m.
Eastern Time on each Business Day. The net asset value of each Money Market
Portfolio is determined twice each Money Market Business Day, once as of 12:00
noon Eastern Time and once as of 4:00 p.m. Eastern Time.
Valuation of securities held by the Non-Money Market Portfolio is as
follows: securities traded on a national securities exchange or on the NASDAQ
National Market System are valued at the last reported sale price that day;
securities traded on a national securities exchange or on the NASDAQ National
Market System for which there were no sales on that day and securities traded on
other over-the-counter markets for which market quotations are readily available
are valued at the mean of the bid and asked prices; and securities for which
market quotations are not readily available are valued at fair market value as
determined in good faith by or under the direction of the Fund's Board of
Directors. The amortized cost method of valuation may also be used with respect
to debt obligations with sixty days or less remaining to maturity.
The Fund seeks to maintain for each of the Money Market Portfolios a net
asset value of $1.00 per Share for purpose 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
of the Money Market Portfolios will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
29
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Class unless a shareholder
elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each of the Money Market Portfolios will be declared as a dividend on
a daily basis and paid monthly, and are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Government Securities Portfolios will declare and pay dividends
from net investment income monthly, generally near the end of each month. Net
realized capital gains (including net short-term capital gains), if any, will be
distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, such Portfolio will be relieved of
Federal income tax on amounts distributed to shareholders, but shareholders,
unless otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital) regardless of whether such
distributions are paid in cash or reinvested in additional Shares.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to bonds bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income. The maximum marginal rate on
ordinary income for individuals, trusts and estates is generally 31% while the
maximum rate imposed on net capital gain of such taxpayers is 28%. Corporate
taxpayers are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio intend to pay substantially all of
their dividends as "exempt interest dividends." Investors in this Portfolio
should note, however, that taxpayers are required to report the receipt of
tax-exempt interest and "exempt interest dividends" in their Federal income tax
returns and that in two circumstances such amounts, while exempt from regular
Federal income tax, are subject to alternative minimum tax at a rate of 24% in
the case of individuals, trusts and estates, and 20% in the case of corporate
taxpayers. First, tax-exempt interest and "exempt interest dividends" derived
from certain private activity bonds issued after August 7, 1986, will generally
constitute an item of tax preference for corporate and noncorporate taxpayers in
determining alternative minimum tax liability. Depending upon market conditions.
The Municipal Money Market Portfolio may invest up to 100% of its net assets in
such private activity bonds. Secondly, tax-exempt interest and "exempt interest
dividends" derived from all Municipal Obligations must be taken into account by
corporate taxpayers in determining their adjusted current earnings adjustment
for alternative minimum tax purposes. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" will be taken into account
in determining the taxability of their benefit payments.
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<PAGE>
The Municipal Money Market Portfolio will determine annually the
percentages of their respective net investment income which are fully
tax-exempt, which constitute an item of tax preference for alternative minimum
tax purposes, and which are fully taxable and will apply such percentages
uniformly to all distributions declared from net investment income during that
year. These percentages may differ significantly from the actual percentages for
any particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. Each Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
Federal excise tax.
Investors should be careful to consider the tax implications of buying
Shares just prior to a distribution. The price of shares purchased at that time
will reflect the amount of the forthcoming distribution. Those investors
purchasing just prior to a distribution will nevertheless be taxed on the entire
amount of the distribution received. The foregoing considerations do not apply
to the purchase of Shares of the Money Market Portfolios that are offered at a
constant net asset value of $1.00 per share.
Shareholders who exchange Shares representing interests in one Portfolio
for Shares representing interests in another Portfolio will generally recognize
capital gain or loss for Federal income tax purposes.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of the Municipal Money Market Portfolio would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Internal Revenue Code, H.R. 10 plans
and individual retirement accounts since such plans and accounts are generally
tax-exempt and, therefore, not only would not gain any additional benefit from
the Portfolios' dividends being tax-exempt but also such dividends would be
taxable when distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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 and 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. 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.
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<PAGE>
Shares of a class of Common Stock in the Cash Preservation Family may be
exchanged for another class of Common Stock in such Family as well as for shares
of the Non-Money Market Classes of Common Stock of the RBB Family. Otherwise, no
exchanges between Families are permitted.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE RBB FAMILY CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE RBB FAMILY CLASSES.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of 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) 430-9618.
SHARE CERTIFICATES
The Fund will issue share certificates for any of the Classes only upon the
written request of a shareholder sent to PFPC.
PERFORMANCE INFORMATION
From time to time, the Non-Money Market Portfolio may advertise its
performance, including comparisons to other mutual funds with similar investment
objectives and to stock or other relevant indices. All such advertisements will
show the average annual total return, net of a Non-Money Market Portfolio's
maximum sales charge, over one, five and ten
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<PAGE>
year periods or, if such periods have not yet elapsed, shorter periods
corresponding to the life of a Non-Money Market Portfolio. Such total return
quotations will be computed by finding the compounded average annual total
return for each time period that would equate the assumed initial investment, of
$1,000 to the ending redeemable value, net of the maximum sales charge and other
fees, according to a required standardized calculation. The standard calculation
is required by the SEC to provide consistency and comparability in investment
company advertising. The Non-Money Market Portfolio may also from time to time
include in such advertising an aggregate total return figure or a total return
figure that is not calculated according to the standardized formula in order to
compare more accurately a Portfolio's performance with other measures of
investment return. For example, a Portfolio's total return may be compared with
data published by Lipper Analytical Services, Inc., CDA Investment Technologies,
Inc. or Weisenberger Investment Company Service, or with the performance of the
Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average. For these
purposes, the performance of a Portfolio, as well as the performance published
by such services or experienced by such indices, will usually not reflect sales
charges, the inclusion of which would reduce performance results. All
advertisements containing performance data will include a legend disclosing that
such performance data represent past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
Shares, when redeemed, may be worth more or less than their original cost. If a
Portfolio advertises non-standard computations, however, the Portfolio will
disclose the maximum sales charge and will also disclose that the performance
data do not reflect sales charges and that inclusion of sales charges would
reduce the performance quoted.
From time to time, the Non-Money Market Portfolio may also advertise its
"30-day yield." The yield of a Non-Money Market Portfolio refers to the income
generated by an investment in the Fund over the 30-day period identified in the
advertisement, and is computed by dividing the net investment income per share
earned by a Non-Money Market Portfolio during the period by the maximum public
offering price per share of the last day of the period. This income is
"annualized" by assuming that the amount of income is generated each month over
a one-year period and is compounded semi-annually. The annualized income is then
shown as a percentage of the net asset value.
From time to time each of the Money Market Portfolios may advertise its
"yield" and "effective yield." Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of
either of the Money Market Portfolios refers to the income generated by an
investment in such a Portfolio over a seven-day period (which period will be
stated in the advertisement). This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in such 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 Municipal
Money Market Portfolio's "tax-equivalent yield" may also be quoted from time to
time, which shows the level of taxable yield needed to produce an after-tax
equivalent to such Portfolio's tax-free yield. This is done by increasing such
Portfolio's yield (calculated as above) by the amount necessary to reflect the
payment of Federal income tax at a stated tax rate.
The yield on Shares of any of the Portfolios will fluctuate and is not
necessarily representative of future results. Shareholders should remember that
yield is generally a function of portfolio quality and maturity, type of
instrument, operating expenses and market conditions. Any fees charged by
broker/dealers directly to their customers in connection with investments in a
Portfolio are not reflected in the yields on a Portfolio's Shares, and such
fees, if charged, will reduce the actual return received by shareholders on
their investments. The yield on Shares of the RBB Family Classes may differ from
yields on shares of other classes of the Fund that also represent interests in
the same Portfolio depending on the allocation of expenses to each of the
classes of that Portfolio. See "Expenses."
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<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
RATINGS OF DEBT SECURITIES
STANDARD & POOR'S CORPORATION
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 the highest rated issues only in a small
degree.
A Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher rated
categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB Debt rated 'BB', 'B', 'CCC', or 'CC' is regarded, on balance, as
predominantly speculative with respect to capacity Bto pay interest and
repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree CCC of speculation and `CC' the highest degree
of speculation. While such debt will likely have some quality and pro CC
tective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
C This rating is reserved for income bonds on which no interest is being
paid.
D Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
(+) The ratings from 'AAA' or 'CCC' may be modified by the addition of a plus
or minus sign to show relative stand OR (-) ing or within the major rating
categories.
* Continuance of the rating is contingent upon S&P's receipt of an executed
copy of the escrow agreement or closing documentation confirming
investments and cash flows.
NR Indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
DEBT OBLIGATIONS OF ISSUERS OUTSIDE THE UNITED STATES AND ITS TERRITORIES
are rated on the same basis as domestic corporate and municipal issues.
The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
P PROVISIONAL RATINGS: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment
of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however,
while addressing credit quality subsequent to completion of the project,
makes no comment on the likelihood of. or the risk of default upon failure
of, such completion. The investor should exercise judgment with respect to
such likelihood and risk.
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NOTES
Note rating symbols are as follows:
SP-1 Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a
plus (+) designation.
SP-2 Satisfactory capacity to pay principal and interest.
SP-3 Speculative capacity to pay principal and interest.
COMMERCIAL PAPER
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
Ratings are graded into four categories, ranging from 'A' for the highest
quality obligations to 'D' for the lowest. The four categories are as follows:
A Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with
the numbers 1, 2, and 3 to indicate the relative degree of safety.
A-1 This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+)
sign designation.
A-2 Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues
designated 'A-1'.
A-3 Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
B Issues rated 'B' are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C This rating is assigned to short-term debt obligations with a doubtful
capacity for payment.
D This rating indicates that the issue is either in default or is expected
to be in default upon maturity.
VARIABLE RATE DEMAND BONDS
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a long-term rating and a variable rate demand
rating. The first rating addresses the likelihood of repayment of principal and
interest due and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, `AAA/A-1 +'). If the nominal maturity is short (three years
or less), a note rating is assigned.
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MOODY'S INVESTORS SERVICE, INC. RATINGS
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CORPORATE BONDS
Aaa
Bonds which are rated Aaa are judged to be 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 which 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.
A
Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa
Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa
Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
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Ca
Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C
Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Moody's bond ratings, where specified, are also applied to senior bank
obligations with an original maturity in excess of one year. Among the bank
obligations covered are bank deposits, bankers acceptance and obligations to
deliver foreign exchange. Obligations relying upon support mechanisms such as
letters-of-credit are excluded unless explicitly rated.
NOTE: Moody's applies numerical modifiers, 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security 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 issue ranks in the lower end of its generic rating
category.
SHORT-TERM NOTES AND VARIABLE RATE DEMAND OBLIGATIONS
The following summarizes the 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.
MIG-3/VMIG-3. Obligations bearing these designations are of favorable
quality. All security elements are accounted for but there is a lacking the
undeniable strength of the preceding grades. Liquidity and cash flow protection
may be narrow and market access for refinancing is hereby to be less well
established.
COMMERCIAL PAPER RATINGS
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 senior short-term debt
obligations. Issuers rated PRIME-2 (or related supporting institutions) are
considered to have strong capacity for repayment of senior short-term debt
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. Issuers PRIME-3 (or
supporting institutions) have an acceptable capacity rated for repayment of
senior short-term debt obligations. The effect of industry characteristics and
market composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained. Issuers rated NOT PRIME do not fall within any of the Prime
rating categories.
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THE RBB FAMILY
GOVERNMENT SECURITIES PORTFOLIO,
MONEY MARKET PORTFOLIO AND
MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of three classes (the "RBB Family Shares or the "Shares")
representing interests in three investment portfolios (the "Portfolios") of The
RBB Fund, Inc. (the "Fund"): the Government Securities Portfolio, the Money
Market Portfolio and the Municipal Money Market Portfolio. This Statement of
Additional Information is not a prospectus, and should be read only in
conjunction with the RBB Family Prospectus of the Fund, dated December 3, 1996
(the "Prospectus"). A copy of the Prospectus may be obtained from 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 2
Investment Objectives and Policies ............ 2 9
Directors and Officers ........................ 21 N/A
Investment Advisory, Distribution
and Servicing Arrangements ................... 23 20
Portfolio Transactions ........................ 29 N/A
Purchase and Redemption Information ........... 31 23
Valuation of Shares ........................... 32 28
Performance and Yield Information.............. 34 N/A
Taxes ......................................... 37 29
Special Tax Considerations Relating to
Government Securities Portfolio .............. 43 N/A
Additional Information Concerning Fund Shares.. 47 N/A
Miscellaneous ................................. 49 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
three classes of shares (the "RBB Family Classes") representing interests in
three of the investment portfolios (the "Portfolios") of the Fund: the
Government Securities Portfolio, the Money Market Portfolio and the Municipal
Money Market Portfolio. The RBB Family Classes are 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 Portfolios. A
description of ratings of certain instruments the Portfolios may purchase is set
forth in the Appendix to the Prospectus.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments held by
a 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 a 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 of comparable quality at the time of purchase to rated instruments
which may be
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purchased by a Money Market Portfolio, the Portfolio's investment
adviser will follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include "when issued" and
delayed delivery securities purchased for delivery beyond the normal settlement
date at a stated price and yield. While firm commitments are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid, high
grade debt securities of an amount at least equal to the purchase price of the
securities to be purchased. Normally, a Portfolio's custodian will set aside
portfolio securities to satisfy a purchase commitment and, in such a case, such
Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Portfolio's commitment. It may be expected that a
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. A 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 Portfolios expect that commitments to purchase "when issued"
securities will not exceed 25% of the value of their respective total assets
absent unusual market conditions. When a Portfolio engages in when-issued
transactions, it relies on the seller to consummate the trade. Failure of the
seller to do so may result in such Portfolio incurring a loss or missing an
opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Under a stand-by commitment 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 a Portfolio, a dealer would agree to purchase at a
Portfolio's option a specified Municipal Obligation at its amortized cost value
to such Portfolio plus accrued interest, if any. Stand-by commitments may be
exercisable by a Portfolio at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
It is expected that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, a 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 a Portfolio will not exceed
1/2 of 1% of the value of a Portfolio's total assets calculated immediately
after each stand-by commitment is acquired.
It is intended that stand-by commitments will be entered into only with
dealers, banks and broker-dealers which, in the investment adviser's opinion,
present minimal credit risks. A Portfolio's reliance upon the credit
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of these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment.
A Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and it is not intended that a Portfolio will exercise its
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 a 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 a
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S.
BANKS. 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 a 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. A
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.
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.
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The average life of pass-through pools varies with the maturities of the
underlying mortgage instruments. In addition, a pool's term may be shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgages and various social and demographic conditions. Because
prepayment rates of individual pools vary widely, it is not possible to predict
accurately the average life of a particular pool. For pools of fixed rate 30
year mortgages, common industry practice is to assume that prepayments will
result in a 12 year average life. Pools of mortgages with other maturities or
different characteristics will have varying assumptions concerning average life.
The assumed average life of pools of mortgages having terms of less than 30
years is less than 12 years, but typically not less than 5 years. Yields on
pass-through securities are typically quoted by investment dealers and vendors
based on the maturity of the underlying instruments and the associated average
life assumption. In periods of falling interest rates, the rate of prepayment
tends to increase, thereby shortening the actual average life of a pool of
underlying mortgage-related securities. Conversely, in periods of rising rates
the rate of prepayment tends to decrease, thereby lengthening the actual average
life of the pool. Historically, actual average life has been consistent with the
12-year assumption referred to above. Actual prepayment experience may cause the
yield of mortgage-related securities to differ from the assumed average life
yield. In addition, as noted in the 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.
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.
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<PAGE>
FUTURES CONTRACTS. When a Portfolio purchases a futures contract, it agrees
to purchase a specified underlying instrument at a specified future date. When a
Portfolio sells a futures contract, it agrees to sell the underlying instrument
at a specified future date. The price at which the purchase and sale will take
place is fixed when the Portfolio enters into the contract. The underlying
instrument may be a specified type of security, such as U.S. Treasury bonds or
notes.
The majority of futures contracts are closed out by entering into an
offsetting purchase or sale transaction in the same contract on the exchange
where they are traded, rather than being held for the life of the contract.
Futures contracts are closed out at their current prices, which may result in a
gain or loss.
If a Portfolio holds a futures contract until the delivery date, it will be
required to complete the purchase and sale contemplated by the contract. In the
case of futures contracts on securities, the purchaser generally must deliver
the agreed-upon purchase price in cash, and the seller must deliver securities
that meet the specified characteristics of the contract.
The Portfolio may purchase futures contracts as an alternative to
purchasing actual securities. For example, if a Portfolio intended to purchase
bonds but had not yet done so, it could purchase a futures contract in order to
lock in current bond prices while deciding on particular investments. This
strategy is sometimes known as an anticipatory hedge. Alternatively, a Portfolio
could purchase a futures contract if it had cash and short-term securities on
hand that it wished to invest in longer-term securities, but at the same time
that Portfolio wished to maintain a highly liquid position in order to be
prepared to meet redemption requests or other obligations. In these strategies
the Portfolio would use futures contracts to attempt to achieve an overall
return -- whether positive or negative --similar to the return from longer-term
securities, while taking advantage of potentially greater liquidity that futures
contracts may offer. Although the Portfolio would hold cash and liquid debt
securities in a segregated account with a value sufficient to cover its open
futures obligations, the segregated assets would be available to the Portfolio
immediately upon closing out the futures position, while settlement of
securities transactions can take several days. However, because the Portfolio's
cash that would otherwise have been invested in higher-yielding bonds would be
held uninvested or invested in short-term securities so long as the futures
position remains open, the Portfolio's return would involve a smaller amount of
interest income and potentially a greater amount of capital gain or loss.
A Portfolio may sell futures contracts to hedge its other investments
against changes in value, or as an alternative to sales of securities. For
example, if the investment adviser anticipated a decline in bond prices, but did
not wish to sell bonds owned by a Portfolio, it could sell a futures contract in
order to lock in a current sale price. If prices subsequently fell, the future
contract's value would be expected to rise and offset all or a portion of the
loss in the bonds that Portfolio had hedged.
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Of course, if prices subsequently rose, the futures contract's value could be
expected to fall and offset all or a portion of the benefit of the Portfolio. In
this type of strategy, the Portfolio's return will tend to involve a larger
component of interest income, because the Portfolio will remain invested in
longer-term securities rather than selling them and investing the proceeds in
short-term securities which generally provide lower yields.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract is
not required to deliver or pay for the underlying instrument unless the contract
is held until the delivery date. However, both the purchaser and seller are
required to deposit "initial margin" with a futures broker (known as a futures
commission merchant, or FCM), when the contract is entered into. Initial margin
deposits are equal to a percentage of the contract's value, as set by the
exchange where the contract is traded, and may be maintained in cash or high
quality liquid securities. If the value of either party's position declines,
that party will be required to make additional "variation margin" payments to
settle the change in value on a daily basis. The party that has a gain may be
entitled to receive all or a portion of this amount. Initial and variation
margin payments are similar to good faith deposits or performance bonds, unlike
margin extended by a securities broker, and initial and variation margin
payments do not constitute purchasing securities on margin for purposes of the
Portfolio's investment limitations. In the event of the bankruptcy of an FCM
that holds margin on behalf of a Portfolio, that Portfolio may be entitled to
return of margin owed to it only in proportion to the amount received by the
FCM's other customers. The investment adviser will attempt to minimize this risk
by careful monitoring of the creditworthiness of the FCMs with which a Portfolio
does business.
CORRELATION OF PRICE CHANGES. The prices of futures contracts depend
primarily on the value of their underlying instruments. Because there are a
limited number of types of futures contracts, it is likely that the standardized
futures contracts available to a Portfolio will not match that Portfolio's
current or anticipated investments. Futures prices can also diverge from the
prices of their underlying instruments, even if the underlying instruments match
the Portfolio's investments well. Futures prices are affected by such factors as
current and anticipated short-term interest rates, changes in volatility of the
underlying instrument, and the time remaining until expiration of the contract,
which may not affect security prices the same way. Imperfect correlation between
a Portfolio's investments and its futures positions may also result from
differing levels of demand in the futures markets and the securities markets,
from structural differences in how futures and securities are traded, or from
imposition of daily price fluctuation limits for futures contracts. A Portfolio
may purchase or sell futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to attempt to
compensate for differences in historical volatility between the futures contract
and the securities, although this may not be successful in all cases. If price
changes in a Portfolio's futures positions are poorly correlated with its other
investments, its futures positions may fail to produce anticipated gains
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or result in losses that are not offset by the gains in that Portfolio's other
investments.
LIQUIDITY OF FUTURES CONTRACTS. Because futures contracts are generally
settled within a day from the date they are closed out, compared with a
settlement period of seven days for some types of securities, the futures
markets can provide liquidity superior to the securities markets in many cases.
Nevertheless, there is no assurance a liquid secondary market will exist for any
particular futures contract at any particular time. In addition, futures
exchanges may establish daily price fluctuation limits for futures contracts,
and may halt trading if a contract's price moves upward or downward more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached, it may be impossible for a Portfolio to enter into new
positions or close out existing positions. If the secondary market for a futures
contract is not liquid because of price fluctuation limits or otherwise, it
would prevent prompt liquidation of unfavorable futures positions, and
potentially could require a Portfolio to continue to hold a futures position
until the delivery date regardless of changes in its value. As a result, a
Portfolio's access to other assets held to cover its futures positions could
also be impaired.
PURCHASING PUT OPTIONS. By purchasing a put option, a Portfolio obtains the
right (but not the obligation) to sell the option's underlying instrument at a
fixed strike price. The option may give a Portfolio the right to sell only on
the option's expiration date, or may be exercisable at any time up to and
including that date. In return for this right, a Portfolio pays the current
market price for the option (known as the option premium). The option's
underlying instrument may be a security, or a futures contract.
A Portfolio may terminate its position in a put option it has purchased by
allowing it to expire or by exercising the option. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises the option, it completes the sale of the underlying instrument at the
strike price. If the Portfolio exercises a put option on a futures contract, it
assumes a seller's position in the underlying futures contract. Purchasing an
option on a futures contract does not require the Portfolio to make futures
margin payments unless it exercises the option. A Portfolio may also terminate a
put option position by closing it out in the secondary market at its current
price, if a liquid secondary market exists.
Put options may be used by a Portfolio to hedge securities it owns, in a
manner similar to selling futures contracts, by locking in a minimum price at
which the Portfolio can sell. If security prices fall, the value of the put
option would be expected to rise and offset all or a portion of the Portfolio's
resulting losses. However, option premiums tend to decrease over time as the
expiration date nears. Therefore, because of the cost of the option in the form
of the premium (and transaction costs), a Portfolio would expect to suffer a
loss in the put option if prices do not decline sufficiently to offset the
deterioration in the value of the option premium. At the same time, because the
maximum a Portfolio has at risk is the cost of the option, purchasing put
options does not eliminate the potential
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for the Portfolio to profit from an increase in the value of the securities
hedged to the same extent as selling a futures contract.
PURCHASING CALL OPTIONS. The features of call options are essentially the
same as those of put options, except that the purchaser of a call option obtains
the right to purchase, rather than sell, the underlying instrument at the
option's strike price (call options on futures contracts are settled by
purchasing the underlying futures contract). By purchasing a call option, a
Portfolio would attempt to participate in potential price increases of the
underlying instrument, with results similar to those obtainable from purchasing
a futures contract, but with risk limited to the cost of the option if security
prices fell. At the same time, a Portfolio can expect to suffer a loss if
security prices do not rise sufficiently to offset the cost of the option.
WRITING PUT OPTIONS. When a Portfolio writes a put option, it takes the
opposite side of the transaction from the option's purchaser. In return for
receipt of the premium, a Portfolio assumes the obligation to pay the strike
price for the option's underlying instrument if the other party to the option
chooses to exercise it. When writing an option on a futures contract the
Portfolio will be required to make margin payments to an FCM as described above
for futures contracts. A Portfolio may seek to terminate its position in a put
option it writes before exercise by closing out the option in the secondary
market at its current price. If the secondary market is not liquid for an option
the Portfolio has written, however, the Portfolio must continue to be prepared
to pay the strike price while the option is outstanding, regardless of price
changes, and must continue to set aside assets to cover its position.
A Portfolio may write put options as an alternative to purchasing actual
securities. If security prices rise, the Portfolio would expect to profit from a
written put option, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it is likely
that the Portfolio will also profit, because it should be able to close out the
option at a lower price. If security prices fall, the Portfolio would expect to
suffer a loss. This loss should be less than the loss the Portfolio would have
experienced from purchasing the underlying instrument directly, however, because
the premium received for writing the option should mitigate the effects of the
decline. As with other futures and options strategies used as alternatives for
purchasing securities, the Portfolio's return from writing put options generally
will involve a smaller amount of interest income than purchasing longer-term
securities directly, because the Portfolio's cash will be invested in
shorter-term securities which usually offer lower yields.
WRITING CALL OPTIONS. Writing a call option obligates a Portfolio to sell
or deliver the option's underlying instrument, in return for the strike price,
upon exercise of the option. The characteristics of writing call options are
similar to those of writing put options, as described above, except that writing
covered call options generally is a profitable strategy if prices remain the
same or fall. Through receipt of the option premium, the
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Portfolio would seek to mitigate the effects of a price decline. At the same
time, because a Portfolio would have to be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
the Portfolio would give up some ability to participate in security price
increases when writing call options.
COMBINED OPTION POSITIONS. A Portfolio may purchase and write options in
combination with each other to adjust the risk and return characteristics of the
overall position. For example, a Portfolio may purchase a put option and write a
call option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
RISKS OF OPTIONS TRANSACTIONS. Options are subject to risks similar to
those described above with respect to futures contracts, including the risk of
imperfect correlation between the option and a Portfolio's other investments and
the risk that there might not be a liquid secondary market for the option. In
the case of options on futures contracts, there is also a risk of imperfect
correlation between the option and the underlying futures contract. Options are
also subject to the risks of an illiquid secondary market, particularly in
strategies involving writing options, which a Portfolio cannot terminate by
exercise. In general, options whose strike prices are close to their underlying
instruments' current value will have the highest trading volume, while options
whose strike prices are further away may be less liquid. The liquidity of
options may also be affected if options exchanges impose trading halts,
particularly when markets are volatile.
ASSET COVERAGE FOR FUTURES AND OPTIONS POSITIONS. A Portfolio will not use
leverage in its options and futures strategies. Such investments will be made
for hedging purposes only. A Portfolio will hold securities or other options or
futures positions whose values are expected to offset its obligations under the
hedge strategies. A Portfolio will not enter into an option or futures position
that exposes the Portfolio to an obligation to another party unless it owns
either (i) an offsetting position in securities or other options or futures
contracts or (ii) cash, receivables and short-term debt securities with a value
sufficient to cover its potential obligations. A Portfolio will comply with
guidelines established by the SEC with respect to coverage of options and
futures strategies by mutual funds, and if the guidelines so require will set
aside cash and high grade liquid debt securities in a segregated account with
its custodian bank in the amount prescribed. Securities held in a segregated
account cannot be sold while the futures or option strategy is outstanding,
unless they are replaced with similar securities. As a result, there is a
possibility that segregation of a large percentage of the Portfolio's assets
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
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LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. The Fund on behalf of the
Government Securities Portfolio has filed a notice of eligibility for exclusion
from the definition of the term "commodity pool operator" with the Commodity
Futures Trading Commission ("CFTC") and the National Futures Association, which
regulate trading in the futures markets. Pursuant to Section 4.5 of the
regulations under the Commodity Exchange Act, the notice of eligibility includes
the following representations:
(a) The Government Securities Portfolio will use commodity futures
contracts and related commodity options solely for bona fide hedging purposes
within the meaning of CFTC regulations; provided that the Portfolio may hold
long positions in commodity futures contracts and related commodity options that
do not fall within the definition of bona fide hedging transactions if the
positions are used as part of a portfolio management strategy and are incidental
to the Portfolio's activities in the underlying cash market, and the underlying
commodity value of the positions at all times will not exceed the sum of (i)
cash or United States dollar-denominated high quality short-term money market
instruments set aside in an identifiable manner, plus margin deposits, (ii) cash
proceeds from existing investments due in 30 days, and (iii) accrued profits on
the positions held by a futures commission merchant; and
(b) The Government Securities Portfolio will not enter into any commodity
futures contract or option on a commodity futures contract if, as a result, the
sum of initial margin deposits on commodity futures contracts and related
commodity options and premiums paid for options on commodity futures contracts
the Portfolio has purchased, after taking into account unrealized profits and
losses on such contracts, would exceed 5% of the Portfolio's total assets.
In addition, the Government Securities Portfolio will not enter into any
futures contract and any option if, as a result, the sum of (i) the current
value of assets hedged in the case of strategies involving the sale of
securities, and (ii) the current value of securities or other instruments
underlying the Portfolio's other futures or options positions, would exceed 50%
of the Portfolio's net assets.
The Government Securities Portfolio's limitations on investments in futures
contracts and its policies regarding futures contracts and the limitations on
investments in options and its policies regarding options discussed above in
this Statement of Additional Information, are not fundamental policies and may
be changed as regulatory agencies permit. A Portfolio will not modify the above
limitations to increase its permissible futures and options activities without
supplying additional information in a current Prospectus or Statement of
Additional Information that has been distributed or made available to the
Portfolio's shareholders.
Various exchanges and regulatory authorities have recently undertaken
reviews of options and futures trading in light of market volatility. Among the
possible actions that have been presented are proposals to adopt new or more
stringent daily price fluctuation limits for futures or
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options transactions, and proposals to increase the margin requirements for
various types of strategies. It is impossible to predict what actions, if any,
will result from these reviews at this time.
SHORT SALES "AGAINST THE BOX." In a short sale, a Portfolio sells a
borrowed security and has a corresponding obligation to the lender to return the
identical security. A Portfolio may engage in short sales if at the time of the
short sale it owns or has the right to obtain, at no additional cost, an equal
amount of the security being sold short. This investment technique is known as a
short sale "against the box." In a short sale, a seller does not immediately
deliver the securities sold and is said to have a short position in those
securities until delivery occurs. If a Portfolio engages in a short sale, the
collateral for the short position will be maintained by the Portfolio's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in short sales against
the box for speculative purposes. A Portfolio may, however, make a short sale as
a hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In such case, any future losses in the Portfolio's long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) paper is
restricted as to disposition under the Federal securities laws and is generally
sold to institutional investors such as the Fund which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of investment dealers who make a market in the Section 4(2) paper,
thereby providing liquidity. See "Illiquid Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio
involved plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying
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the repurchase agreement). Securities subject to repurchase agreements will be
held by the Fund's custodian in the Federal Reserve/Treasury book-entry system
or by another authorized securities depository. Repurchase agreements are
considered to be loans by a Portfolio involved under the 1940 Act.
LOANS OF PORTFOLIO SECURITIES. With respect to loans by the Government
Securities Portfolio of its portfolio securities as described in the Prospectus,
such Portfolio would continue to accrue interest on loaned securities and would
also earn income on loans. Any cash collateral received by such Portfolio in
connection with such loans would be invested in short-term U.S. Government
obligations.
RIGHTS OFFERINGS AND PURCHASE WARRANTS. Rights offerings and purchase
warrants are privileges issued by a corporation which enable the owner to
subscribe to and purchase a specified number of shares of the corporation at a
specified price during a specified period of time. Subscription rights normally
have a short lifespan to expiration. The purchase of rights or warrants involves
the risk that a Portfolio could loose the purchase value of a right or warrant
if the right to subscribe to additional shares is not executed prior to the
rights and warrants expiration. Also, the purchase of rights and/or warrants
involves the risk that the effective price paid for the right and/or warrant
added to the subscription price of the related security may exceed the value of
the subscribed security's market price such as when there is no movement in the
level of the underlying security. A Portfolio will not invest more than 5% of
its total assets, taken at market value, in warrants, or more than 2% of its
total assets, taken at market value, in warrants not listed on the New York or
American Stock Exchanges. Warrants acquired by a Portfolio in units or attached
to other securities are not subject to this restriction.
ELIGIBLE SECURITIES - MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS.
The Money Market and Municipal Money Market Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
Portfolios' 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 only one NRSRO 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 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
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letter of credit or similar credit enhancement) ("demand instrument") (a) that
are unconditional (readily exercisable in the event of default), provided that
the demand feature satisfies (2), (3) or (4) above, or (b) that are not
unconditional, provided that the demand feature satisfies (2), (3) or (4) above,
and the demand instrument or long-term obligations of the issuer satisfy (2) or
(4) above for long-term debt obligations. The Board of Directors will approve or
ratify any purchases by the Money Market Portfolio of securities that are rated
by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. The non-money market portfolio of the Fund may invest
up to 15% of its net assets in illiquid securities, however, none of the money
market Portfolios may invest more than 10% of its net assets in illiquid
securities (including with respect to all Portfolios other than the Municipal
Money Market Portfolio, repurchase agreements which have a maturity of longer
than seven days), including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered illiquid for purposes of this
limitation. Each Portfolio's investment adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors. With
respect to the Government Securities and Money Market Portfolios, repurchase
agreements subject to demand are deemed to have a maturity equal to the notice
period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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
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resale to the general public or to certain institutions may not be indicative of
the liquidity of such investments.
The SEC adopted Rule 144A which allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this new relatively regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio pursuant to guidelines established by
and under the supervision of the Board of Directors. Where there are no readily
available market quotations, the security shall be valued a fair value as
determined in good faith by the Board of Directors of the Fund. 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.
None of the MONEY MARKET OR MUNICIPAL MONEY MARKET PORTFOLIOS may:
1. Borrow money, except from banks for temporary purposes (and with respect
to the Money Market Portfolio only, except for reverse repurchase agreements)
and then in amounts not in excess of 10% of the value of a 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 or hypothecate any of its assets except as may be necessary in
connection with such borrowing and then, with respect to the Money Market
Portfolio, in amounts not in excess of 10% of the value of a Portfolio's total
assets at the time of the borrowing and, with respect to the other Portfolios,
in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of
the value of a Portfolio's total assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling a Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient);
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2. Purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase more than 5% of a Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
3. Purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
4. Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, a Portfolio may be
deemed an underwriter under Federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
5. Make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
6. Purchase or sell real estate, provided that a Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
7. Purchase or sell commodities or commodity contracts;
8. Invest in oil, gas or mineral-related programs or leases;
9. Make loans except that a Portfolio may purchase or hold debt obligations
in accordance with its investment objective, policies and limitations and except
that all Portfolios other than the Tax-Free Portfolio and the Municipal Money
Market Portfolio may enter into repurchase agreements;
10. Purchase any securities issued by any other investment company except
in connection with the merger, consolidation or acquisition of all the
securities or assets of such an issuer; or
11. Make investments for the purpose of exercising control or management.
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MONEY MARKET PORTFOLIO. In addition to the foregoing enumerated policy
limitations, the Money Market Portfolio may not:
(a) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry.
(b) Purchase any securities other than Money Market Instruments (which
include U.S. Treasury Bills, other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of deposit, bankers'
acceptances and commercial paper (including variable amount master notes), 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.
(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.
With respect to limitation (a) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change may
require the approval of the SEC and would be disclosed in the Prospectus prior
to being made.
MUNICIPAL MONEY MARKET PORTFOLIO. In addition to the foregoing enumerated
policy limitations, the Municipal Money Market Portfolio may not:
(a) Change its policy of investing during normal market conditions at least
80% of its net assets in obligations the interest on which is exempt from the
regular Federal income tax, although the interest on such securities may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax and may not invest in private activity bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations.
(b) Purchase any securities which would cause, at the time of purchase,
more than 25% of the value of the total assets of the
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Portfolio to be invested in the obligations of issuers in the same industry.
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 affected or (b) 67% or more of the shares of the Portfolio
affected present at a shareholders' meeting if more than 50% of the outstanding
shares of the Portfolio affected are represented at the meeting in person or by
proxy.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the 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.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if after
the acquisition of the Put the Municipal Money Market Portfolio
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has more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing condition
shall only be applicable with respect to 75% of the Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified underlying
instrument within a specified period of time and at a specified exercise price
that may be sold, transferred or assigned only with the underlying instrument.
The GOVERNMENT SECURITIES PORTFOLIO may not:
1. Purchase the 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 value 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
total assets may be invested without regard to such limitations;
2. Borrow money, except from banks for temporary purposes 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
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 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);
3. Purchase any securities which would cause, at the time of purchase, 25%
or more of the value of the total assets of the Portfolio to be invested in the
obligations of issuers in any industry, provided that there is no limitation
with respect to investments in U.S. Government obligations;
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
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(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies;
5. Purchase securities on margin (but may make margin payments in
connection with transactions in financial futures contracts and related options)
or purchase real estate or interests therein, commodities or commodity contracts
except financial futures contracts and related options;
6. Engage in the underwriting of securities by other issuers, except to the
extent that the Portfolio may be deemed to be an underwriter in selling, as part
of an offering registered under the Securities Act of 1933, as amended,
securities which it has acquired, or participate on a joint or joint-and-several
basis in any securities trading account. The "bunching" of orders with other
accounts under the management of the investment adviser to save commissions or
to average prices among them is not deemed to result in a securities trading
account;
7. Effect a short sale of any security except in hedging strategies, and
then only to the extent such investments do not exceed 25% of the Portfolio's
net asset, value or issue senior securities except as permitted by limitation 2
above. For purposes of this restriction, the purchase and sale of financial
futures and related options does not constitute the issuance of a senior
security;
8. Purchase securities of any company with a record of less than three
years' continuous operation if such purchase would cause the Portfolio's
investments in all such companies taken at cost to exceed 5% of the Portfolio's
total assets taken at market value;
9. Invest for the purpose of exercising control over or management of any
company;
10. Invest more than 10% of its total assets in the securities of other
investment companies; or
11. Purchase interest in oil, gas or other mineral exploration programs;
however, this policy will not prohibit the acquisition of securities of
companies engaged in the production or transmission of oil, gas or other
minerals.
In determining whether the Portfolio has complied with limitation 3 above,
the Portfolio will not take into account the value of options and futures.
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
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a shareholders' meeting if more than 50% of the outstanding shares of the
Portfolio are represented at the meeting in person or by proxy.
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 Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E. M.
Warburg, Pincus & Co.,
Inc.; Since 1990,
Chief Executive
Officer and since
1991, Secretary,
Counsellors Securities
Inc; Officer of
various investment
companies advised
by Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky- 58** Director Since OCTOBER 1996,
110 Wall Street SENIOR VICE PRESIDENT
New York, NY 10005 OF FAHNESTOCK & CO.,
INC. 1985 TO 1996,
Executive
Vice President of
Gruntal & Co., Inc.,
Director, Gruntal &
Co., Inc.
Francis J. McKay-60 Director Since 1963, Executive
7701 Burholme Avenue Vice President,
Philadelphia, PA 1911 Fox Chase Cancer
Center (Biomedical
research and medical
care.)
Marvin E. Sternberg- 62 Director Since 1974, Chairman,
937 Mt. Pleasant Road Director and
Bryn Mawr, PA 19010 President, 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,
Inc.) (Shopping
Centers); and Since
1975,
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Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
Director and
Executive Vice
President, Cellucap
Mfg. Co., Inc.
(manufacturer of
disposable headwear).
Julian A. Brodsky- 63 Director Director and Vice
1234 Market Street Chairman, 1969 to
16th Floor present, Comcast
Philadelphia, PA 19107-3703 Corporation; Director
Comcast Cablevision
of Philadelphia (cable
television and
communications) and
Nextel (wireless
communication).
Donald van Roden- 72 Director Self-employed business
1200 Old Mill Lane man. From February
Wyomissing, PA 19610 1980 to March 1987,
Vice Chairman,
SmithKline Beckman
Corporation
(pharmaceuticals);
Director, AAA
Mid-Atlantic (auto
service); Director,
Keystone Insurance Co.
Edward J. Roach- 72 President and Certified Public
Suite 100 Treasurer Accountant; Vice
Bellevue Park Chairman of the Board,
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Emeritus
Wilmington, DE 19809 Trustee, 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
1100 PNB Bank Building firm of Drinker Biddle
Broad and Chestnut Streets & Reath, Philadelphia
Philadelphia, PA 19107 Pennsylvania;
Director, Rocking
Horse Child Care
Centers of America,
Inc.
- ---------------------
* 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.
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<PAGE>
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 Bank Institutional
Management Corporation ("PIMC"), the Fund's adviser, PNC Bank, National
Association ("PNC Bank"), the sub-adviser to all Portfolios other than the
Government Securities Portfolio, which has no sub-adviser, and the Fund's
custodian, and Counsellors Securities Inc. (the "Distributor"), the Fund's
distributor, the Fund itself requires only one part-time employee. No officer,
director or employee of PIMC, PNC Bank 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 each of them
for such services are described in the Prospectus. PIMC renders advisory
services to each of the Portfolios pursuant to separate Investment Advisory and
Administration Agreements, and PNC Bank renders sub-advisory
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<PAGE>
services to each of the Portfolios other than the Government Securities
Portfolio, which has no sub-adviser. The Advisory and Sub-Advisory Agreements
relating to the Money Market Portfolio are dated August 16, 1988; the Advisory
and Sub-Advisory Agreements relating to the Municipal Money Market Portfolio are
dated April 21, 1992 and August 16, 1988, respectively; the Advisory Agreement
relating to the Government Securities Portfolio is dated June 25, 1990. Such
advisory and sub-advisory agreements are hereinafter collectively referred to as
the "Advisory Contracts."
For the year ended August 31, 1996, PIMC WAIVED ADVISORY FEES WITH RESPECT
TO THE GOVERNMENT SECURITIES, MONEY MARKET AND MUNICIPAL MONEY MARKET PORTFOLIOS
IN THE AMOUNT OF $39,247, $3,527,715 AND $1,218,973 RESPECTIVELY UNDER THE
APPLICABLE ADVISORY CONTRACT. DURING THE SAME YEAR OR PERIOD, PIMC RECEIVED
ADVISER FEES (AFTER WAIVERS) IN THE AMOUNTS OF $ 0 , $4,174,375 AND $190,687
RESPECTIVELY. FOR THE YEAR ENDED AUGUST 31, 1995, PIMC waived advisory fees with
respect to the Government Securities, Money Market and Municipal Money Market
Portfolios in the amount of $178,872, $2,589,832 and $1,041,321 respectively
under the applicable Advisory Contract. During the same year or period, PIMC
received adviser fees (after waivers) in the amounts of $0, $2,274,697 and
$67,752 respectively. For year ended August 31, 1994 PIMC waived advisory fees
with respect to the Government Securities, Money Market and Municipal Money
Market Portfolios in the amount of $228,607, $2,255,986, and $1,091,646
respectively under the applicable Advisory Contract. During the same year or
period, PIMC received advisor fees (after waivers) in the amounts of $0,
$1,947,768 and $7,733 respectively.
As required by various state regulations, PIMC will reimburse the Fund or
the Portfolio affected (as applicable) if and to the extent that the aggregate
operating expenses of the Fund or the 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 1/2% of the first
$30 million of average annual net assets, 2% of the next $70 million of average
annual net assets and 1 1/2% of the remaining average annual net assets. Certain
expenses, such as brokerage commissions, taxes, interest and extraordinary
items, are excluded from this limitation. Whether such expense limitations apply
to the Fund as a whole or to each Portfolio on an individual basis depends upon
the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically assumed by
PIMC. General expenses of the Fund not readily identifiable as belonging to a
portfolio of the Fund are allocated among all investment portfolios by or under
the direction of the Fund's Board of Directors in such manner as the Board
determines to be fair and equitable. Expenses borne by a portfolio include, but
are not limited to, the following (or a portfolio's share of the following): (a)
the cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by PIMC; (c) expenses of
organizing the Fund that are not attributable to a class of the Fund; (d)
certain of the filing fees and expenses relating to the registration and
qualification of the Fund and a
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<PAGE>
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 for continuation
with respect to each of the Portfolios on July 10, 1996 by 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 approved with respect to the Money
Market Portfolio by the shareholders of the Portfolio at a special meeting held
on December 22, 1989, as adjourned. The applicable Advisory Contracts were
approved with respect to the Government Securities Portfolio by shareholders of
such Portfolio at a special meeting held July 26, 1991, as adjourned and the
Advisory Contracts were each approved with respect to the Municipal Money Market
Portfolio by shareholders at meetings held December 22, 1989, as adjourned
(sub-advisory agreements) and June 10, 1992, as adjourned (current advisory
agreement). Each Advisory Contract is terminable by vote of the Fund's Board of
Directors or by the holders of a majority of the outstanding voting securities
of the relevant Portfolio, at any time without penalty, on 60 days' written
notice to PIMC or PNC Bank.
-25-
<PAGE>
Each of the Advisory Contracts relating to a Portfolio may also be terminated by
PIMC or PNC Bank, respectively, on 60 days' written notice to the Fund. Each of
the Advisory Contracts terminates automatically in the event of assignment
thereof.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC Inc. ("PFPC"), an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's RBB Family Classes pursuant to a
Transfer Agency Agreement dated June 29, 1990, with respect to Portfolios
(collectively, the "Transfer Agency Agreement"), under which PFPC (a) issues and
redeems shares of each of the RBB Family Classes, (b) addresses and mails all
communications by each Portfolio to record owners of shares of each such Class,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (c) maintains shareholder accounts
and, if requested, sub-accounts and (d) makes periodic reports to the Fund's
Board of Directors concerning the operations of each RBB Family 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 $11.00 per account in the Government Securities, for orders which are
placed via third parties and electronically relayed to PFPC, and at an annual
rate of $13.00 per account for all other orders; and $15.00 per account in each
of the Money Market Portfolios for orders which are placed via third parties and
electronically relayed to PFPC, and at an annual rate of $17.00 per account for
all other orders, exclusive of out-of-pocket expenses, and also receives
reimbursement of its out-of-pocket expenses.
PFPC has entered into, and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
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<PAGE>
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
ADMINISTRATION AGREEMENTS. PFPC serves as administrator to the Government
Securities Portfolio pursuant to an Administration Agreement effective April 10,
1991, and to the Municipal Money Market Portfolio pursuant to an Administration
and Accounting Services Agreement dated April 21, 1992 (collectively, the
"Administration Agreements"). PFPC has agreed to furnish to the Fund on behalf
of the Government Securities and Municipal Money Market Portfolios statistical
and research data, clerical, accounting and bookkeeping services, and certain
other services required by the Fund. In addition, PFPC has agreed to prepare and
file various reports with the appropriate regulatory agencies and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or a
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreements, PFPC receives a fee of .10%
of the average daily net assets of each of the Government Securities and
Municipal Money Market Portfolios.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a distribution contract,
dated as of April 10, 1991, and supplements (collectively, the "Distribution
Contracts") entered into by the Distributor and the Fund on behalf of each of
the RBB Family Classes, and separate Plans of Distribution for each of the RBB
Family Classes (collectively, and as amended, the "Plans") all of which were
adopted by the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act,
the Distributor will use its best efforts to distribute shares of each of the
RBB Family Classes. As compensation for its distribution services, the
Distributor will receive, pursuant to the terms of the Distribution Contracts, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus. The Distributor currently proposes to reallow up to
all of its distribution payments to Authorized Dealers for selling shares of
each of the Portfolios based on a percentage of the amounts invested by their
customers.
Each of the Plans relating to the Government Securities, Money Market and
Municipal Money Market Portfolios were most recently approved for
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<PAGE>
continuation, as amended, on July 10, 1996 with respect to the relevant RBB
Family Class by the Fund's Board of Directors, including the directors who are
not "interested persons" of the Fund and who have no direct or indirect
financial interest in the operation of the Plans or any agreements related to
the Plans ("12b-1 Directors"). The Plan relating to the Government Securities
Portfolio was approved by its shareholders at a special meeting held July 26,
1991, as adjourned. Each of the Plans relating to the Money Market and Municipal
Money Market Portfolios were approved by shareholders of each RBB Family Class
at a special meeting of shareholders held December 22, 1989, as adjourned.
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the RBB Family 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 RBB Family 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 such directors who are not "interested persons" of the Fund.
During the year ended August 31, 1996 the Fund paid distribution fees to
the Distributor under the Plans for the RBB Family Classes of each of the
Government Securities, Money Market and Municipal Money Market Portfolios in the
aggregate amounts of $39,251, $226 and $21, respectively. Of those amounts,
$25,586, $0, and $0 was paid to dealers with whom the Fund's Distributor had
entered into dealer agreements and $13,665, $226 and $21 was retained by the
Distributor and used to pay certain legal fees, printing, postage, travel and
entertainment, administrative and sales and marketing expenses. During the same
year, the Distributor waived no distribution fees for each of the RBB Family
Classes of the Government Securities, Money Market and Municipal Money Market
Portfolios. The Fund believes that such Plans may benefit the Fund by increasing
sales of Shares. Mr. Reichman, a Director of the Fund, has an indirect financial
interest in the operation of the Plans by virtue of his position as Chief
Executive Officer and Secretary of the Distributor. Mr. Sablowsky, a Director of
the Fund, had an indirect interest in the operation of the Plans by virtue of
his previous position as Executive Vice President of Gruntal & Co., Inc., a
broker-dealer which sells the Fund's shares.
The Distribution Contract applicable to the Government Securities Portfolio
also provide that the Distributor will be entitled to receive sales commissions
equal to 4.99% of the net asset value of shares sold in any month, with such
commissions being reduced for volume sales and sales made under
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<PAGE>
certain purchase programs described in the Prospectus. Notwithstanding the
foregoing, certain classes of investors described in the Prospectus who are
associated with the Fund, the Distributor, PIMC, PNC Bank, PFPC or Warburg are
not charged any sales commissions.
PORTFOLIO TRANSACTIONS
Subject to policies established by the Board of Directors, PIMC is
responsible for the execution of portfolio transactions and the allocation of
brokerage transactions for the Government Securities, Money Market and Municipal
Money Market Portfolios. In executing portfolio transactions, PIMC seeks to
obtain the best net results for a Portfolio, taking into account such factors as
the price (including the applicable brokerage commission or dealer spread), size
of the order, difficulty of execution and operational facilities of the firm
involved. While PIMC generally seeks reasonably competitive commission rates,
payment of the lowest commission or spread is not necessarily consistent with
obtaining the best results in particular transactions.
No Portfolio has any obligation to deal with any broker or group of brokers
in the execution of portfolio transactions. PIMC may, consistent with the
interests of a Portfolio and subject to the approval of the Board of Directors,
select brokers on the basis of the research, statistical and pricing services
they provide to a Portfolio and other clients of PIMC. Information and research
received from such brokers will be in addition to, and not in lieu of, the
services required to be performed by PIMC under its respective contract. A
commission paid to such brokers may be higher than that which another qualified
broker would have charged for effecting the same transaction, provided that
PIMC, as applicable, determines in good faith that such commission is reasonable
in terms either of the transaction or the overall responsibility of PIMC to a
Portfolio and its other clients and that the total commissions paid by a
Portfolio will be reasonable in relation to the benefits to a Portfolio over the
long-term.
Corporate debt and U.S. Government securities are generally traded on the
over-the-counter market on a "net" basis without a stated commission, through
dealers acting for their own account and not as brokers. The Portfolios will
primarily engage in transactions with these dealers or deal directly with the
issuer unless a better price or execution could be obtained by using a broker.
Prices paid to a dealer in debt securities will generally include a "spread,"
which is the difference between the prices at which the dealer is willing to
purchase and sell the specific security at the time, and includes the dealer's
normal profit.
PIMC may seek to obtain an undertaking from issuers of commercial paper or
dealers selling commercial paper to consider the repurchase of such securities
from a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces
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<PAGE>
the possibility that a Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by PIMC 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 a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which PIMC or Warburg 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 or Warburg not participate in or benefit from the sale to a
Portfolio.
Purchases of portfolio securities by each of the Money Market Portfolio and
the Municipal Money Market Portfolio (collectively, the "Money Market
Portfolios") are made from dealers, underwriters and issuers. Such Portfolios do
not 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 or sold directly from or
to an issuer, no commissions or discounts are paid. It is the policy of such
Portfolios to give primary consideration to obtaining the most favorable price
and efficient execution of transactions. In seeking to implement the policies of
such Portfolios, PIMC will effect transactions with those dealers it believes
provide the most favorable prices and are capable of providing efficient
executions. In no instance will portfolio securities be purchased from or sold
to the Distributor, PIMC or PNC Bank or any affiliated person of the foregoing
entities except as permitted by SEC exemptive order or by applicable law.
During the years ended August 31, 1993 through August 31, 1996, no
Portfolio paid brokerage commissions.
Each of the Money Market Portfolios intends to purchase only securities
with remaining maturities of 397 calendar days or less, except for securities
that are subject to repurchase agreements (which in turn may have
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<PAGE>
maturities of 397 calendar days or less). Each of the Money Market Portfolios
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 each of the Money Market Portfolios intends to
purchase only securities with remaining maturities of 397 calendar days or less,
for regulatory purposes, its portfolio turnover rate will be zero. However,
because brokerage commissions will not normally be paid with respect to
investments made by each such Portfolio, the turnover rate should not adversely
affect such Portfolio's net asset value or net income. The Money Market
Portfolios do not intend to seek profits through short-term trading.
The Government Securities Portfolio expects that its annual portfolio
turnover rate will not exceed 200%. A high rate of portfolio turnover involves
correspondingly greater brokerage commission expenses and other transaction
costs, which must be borne directly by the Portfolio. Federal income tax laws
may restrict the extent to which a portfolio may engage in short term trading of
securities. See "Taxes". For the year ended August 31, 1996, the Government
Securities Portfolio had a turnover rate of 77%. The Government Securities
Portfolio (the "Non-Money Market Portfolio") anticipates that its annual
portfolio turnover rate will vary from year to year. The portfolio turnover rate
is calculated by dividing the lesser of a Portfolio's annual sales or purchases
of portfolio securities (exclusive of purchases or sales of securities whose
maturities at the time of acquisition were one year or less) by the monthly
average value of the securities in the portfolio during the year.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right to redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the
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recordation of the transfer of its shares upon the occurrence of any of the
foregoing conditions.)
VALUATION OF SHARES
The net asset value per share of each Non-Money Market Portfolio is
calculated as of 4:00 p.m. Eastern Time on each Business Day. "Business Day"
means each weekday when the NYSE is 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). Securities
which are listed on stock exchanges are valued at the last sale price on the day
the securities are valued or, lacking any sales on such day, at the mean of the
bid and asked prices available prior to the evaluation. In cases where
securities are traded on more than one exchange, the securities are generally
valued on the exchange designated by the Board of Directors as the primary
market. Securities traded in the over-the-counter market and listed on the
National Association of Securities Dealers Automatic Quotation System ("NASDAQ")
are valued at the last trade price listed on the NASDAQ at 4:00 p.m.; securities
listed on NASDAQ for which there were no sales on that day and other
over-the-counter securities are valued at the mean of the bid and asked prices
available prior to valuation. Securities for which market quotations are not
readily available are valued at fair value as determined in good faith by or
under the direction of the Fund's Board of Directors. The amortized cost method
of valuation may also be used with respect to debt obligations with sixty days
or less remaining to maturity.
The net asset value per share of each of the Money Market Portfolios is
computed twice each day, as of 12:00 noon Eastern Time and as of 4:00 p.m.
Eastern Time on each Money Market Business Day. "Money Market Business Day"
means any day that both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the FRB is 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 intends
to use its best efforts to maintain the net asset value of each of the Money
Market Portfolios at $1.00 per share. The Fund calculates the value of the
portfolio securities of the Money Market Portfolios by using the amortized cost
method of valuation. Under this method the market value of an instrument is
approximated by amortizing the difference between the acquisition cost and value
at maturity of the instrument on a straight-line basis over the remaining life
of the instrument. The effect of changes in the market value of a security as a
result of fluctuating interest rates is not taken into account. The market value
of debt securities usually reflects yields generally available on securities of
similar quality. When such yields decline, market values can be expected to
increase, and when yields increase, market values can be expected to decline. In
addition, if a large number of redemptions take place at a time when interest
rates have increased, the Money Market Portfolios may have to sell portfolio
securities prior to maturity and at a price which might not be as desirable.
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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 Money Market
Portfolios would receive if the security were sold prior to maturity. The Fund's
Board of Directors has established procedures for the purpose of maintaining a
constant net asset value of $1.00 per share for each of the Money Market
Portfolios, 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 Money Market
Portfolio or the Municipal Money Market Portfolio, the Board of Directors will
promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
Each of the Money Market Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less and 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 are eligible securities and 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 AND YIELD INFORMATION
TOTAL RETURN. For purposes of quoting and comparing the performance of the
Fund's Non-Money Market Portfolios to that of other mutual funds and to stock or
other relevant indices in advertisements or in reports to shareholders,
performance may be stated in terms of total return. Under the rules of the
Securities and Exchange Commission, funds advertising performance must include
total return quotes calculated according to the following formula:
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P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value at the end of the 1, 5 or 10 year periods (or
fractional portion thereof) of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods.
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertisement for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's registration statement. In calculating the ending redeemable
value, the maximum sales load is deducted from the initial $1,000 payment and
all dividends and distributions by the Fund are assumed to have been reinvested
at net asset value, as described in the Prospectus, on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value. Any sales loads that might in the
future be made applicable at the time to reinvestments would be included as
would any recurring account charges that might be imposed by the Fund.
The Non-Money Market Portfolios may also from time to time include in such
advertising an aggregate total return figure or a total return figure that is
not calculated according to the formula set forth above in order to compare more
accurately a Portfolio's performance with other measures of investment return.
For example, in comparing a Portfolio's total return with data published by
Lipper Analytical Services, Inc., CDA Investment Technologies, Inc. or
Weisenberger Investment Company Service, or with the performance of the Standard
& Poor's 500 Stock Index or the Dow Jones Industrial Average, as appropriate, a
Portfolio may calculate its aggregate and/or average annual total return for the
specified periods of time by assuming the investment of $10,000 in Portfolio
shares and assuming the reinvestment of each dividend or other distribution at
net asset value on the reinvestment date. The Portfolio does not, for these
purposes, deduct from the initial value invested any amount representing sales
charges. The Portfolio will, however, disclose the maximum sales charge and will
also disclose that the performance data do not reflect sales charges and that
inclusion of sales charges would reduce the performance quoted. Such alternative
total return information will be given no greater prominence in such advertising
than the information prescribed under SEC rules, and all advertisements
containing performance data will include a legend disclosing that such
performance data represent past performance and that the investment return and
principal value of an investment will fluctuate so that an
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investor's shares, when redeemed, may be worth more or less than their original
cost.
Calculated according to the SEC rules, for the year ended August 31,
1996, both the average annual total return and the aggregate total return for
the Government Securities Portfolio was 2.17%. Calculated according to the SEC
rules, for the period beginning on the commencement of the Government Securities
Portfolio's operations and ending August 31, 1996, the average annual total
return for the Government Securities Portfolio (commencing August 1, 1991) was
4.95%. For the same periods, the aggregate total return for the Government
Securities Portfolio (commencing August 1, 1991) was 27.86%.
Calculated according to the non-standardized computation, which assumes no
sales charges and reinvestment of all distributions for the year ended August
31, 1996, both the average annual total return and the aggregate total return
for the Government Securities Portfolio, was 2.75%. Calculated also according
to the non-standardized computation for the period beginning on the commencement
of the Government Securities Portfolio's operations and ending on August 31,
1996, the average annual total return for the Government Securities Portfolio
was 5.96%. The aggregate total return for the Government Securities Portfolio
calculated according to the non-standardized computation for the period
beginning on the commencement of the Government Securities Portfolio's
operations and ending on August 31, 1996 was 34.25%.
NON-MONEY MARKET YIELD. The Non-Money Market Portfolio may also advertise
its yield. Under the rules of the SEC, a Non-Money Market Portfolio advertising
yield must calculate yield using the following formula:
YIELD = 2[(a-b +1)6 - 1]
---
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day of
the period.
Under the foregoing formula, yield is computed by compounding
semi-annually, the net investment income per share earned during a 30 day period
divided by the maximum offering price per share on the last day of the period.
For the purpose of determining the interest earned (variable "a" in the formula)
on debt obligations that were purchased by a Portfolio at a discount or premium,
the formula generally calls for amortization of the discount or premium; the
amortization schedule will be adjusted monthly to reflect changes in the market
values of the debt obligations.
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The yield for the 30 day period ended August 31, 1996 for the Government
Securities Portfolio was 5.50%.
MONEY MARKET YIELD. The Money Market Portfolios' current yields and
effective yields are computed using standardized methods required by the SEC.
The yields for the Money Market Portfolios 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) analyzing 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.
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 RBB
Family Classes of each of the Money Market Portfolio and the Municipal Money
Market Portfolio was 4.48% and 2.65%, respectively. The effective yield for
the same period was 4.58% and 2.68%, respectively. The tax equivalent yield
for the same period for the RBB Family Class of the Municipal Money Market
Portfolio was 3.68% (assuming an income tax rate of 28%).
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields will fluctuate, they cannot be compared with
yields on savings account or other investment alternatives that provide an
agreed to or guaranteed fixed yield for a stated period of time. However, yield
information may be useful to an investor considering temporary investments in
money market instruments. In comparing the yield of one money market fund to
another, consideration should be given to each fund's investment policies,
including the types of investments made, lengths of maturities of the portfolio
securities, the method used by each fund to compute the yield (methods may
differ) and whether there are any special account charges which may reduce the
effective yield.
The yields on certain obligations 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 Investors Service, Inc. and Standard & Poor's Corporation
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, the
Portfolio's investment adviser or sub-adviser will consider whether the
Portfolio should continue to hold the obligation.
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From time to time, in advertisements or in reports to shareholders with
respect to a Portfolio, the yields of such Portfolio may be quoted and compared
to those of other mutual funds with similar investment objectives and to stock
or other relevant indices. For example, the yield of a Portfolio may be compared
to the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA, 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the data prepared by Lipper Analytical Services, Inc., a widely-recognized
independent service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax considerations
generally affecting the Portfolios and their shareholders that are not described
in the Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Portfolios or their shareholders, and the discussion
here and in the Fund's Prospectus is not intended as a substitute for careful
tax planning. Investors are urged to consult their tax advisers with specific
reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated investment company
under Part I of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, each Portfolio is exempt from
Federal income tax on its net investment income and realized capital gains which
it distributes to shareholders, provided that it distributes an amount equal to
the sum of (a) at least 90% of its investment company taxable income (net
taxable investment income and the excess of net short-term capital gain over net
long-term capital loss), if any, for the year and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement each Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies, or from other income
derived with respect to its business of investing in such stock, securities, or
currencies (the "Income Requirement") and derive less than 30% of its gross
income from the sale or other disposition of any of the following investments,
if such investments were held for less than three months: (a) stock or
securities (as defined in Section 2(a)(36) of the 1940
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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 accrued original issue discount
and, in the case of debt securities bearing taxable interest income, "accrued
market discount") received by a Portfolio at maturity or on disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security for purposes of the
Short-Short Gain Test. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
Future Treasury regulations may provide that currency gains that are not
"directly related" to a Portfolio's principal business of investing in stock or
securities (or in options or futures with respect to stock or securities) will
not satisfy the Income Requirements. Income derived by a regulated investment
company from a partnership or trust will satisfy the Income Requirement only to
the extent such income is attributable to items of income of the partnership or
trust that would satisfy the Income Requirement if they were realized by a
regulated investment company in the same manner as realized by the partnership
or trust.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Portfolio's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which 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 each Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in informal rulings
issued to other taxpayers, that the issuer of a repurchase agreement is the bank
or dealer from which securities are purchased. A 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 it to fail to satisfy the Asset Diversification Requirement.
Distributions of investment company taxable income will be taxable (subject
to the possible allowance of the dividend received deduction described below) to
shareholders as ordinary income, regardless of whether such distributions are
paid in cash or are reinvested in shares. Shareholders
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receiving any distribution from the Fund in the form of additional shares will
be treated as receiving a taxable distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment date.
Each Portfolio intends to distribute to shareholders its excess of net
long-term capital gain over net short-term capital loss ("net capital gain"), if
any, for each taxable year. Such gain is distributed as a capital gain dividend
and is taxable to shareholders as long-term capital gain, regardless of the
length of time the shareholder has held his shares, whether such gain was
recognized by the Portfolio prior to the date on which a shareholder acquired
shares of the Portfolio and whether the distribution was paid in cash or
reinvested in shares. The aggregate amount of distributions designated by any
Portfolio as capital gain dividends may not exceed the net capital gain of such
Portfolio for any taxable year, determined by excluding any net capital loss or
net long-term capital loss attributable to transactions occurring after October
31 of such year and by treating any such loss as if it arose on the first day of
the following taxable year. Such distributions will be designated as capital
gain dividends in a written notice mailed by the Fund to shareholders not later
than 60 days after the close of each Portfolio's respective taxable year. While
the Tax-Free Portfolio, Money Market Portfolio and Municipal Money Market
Portfolio do not expect to realize long-term capital gains, the Fund intends to
distribute any net long-term capital gains that may be realized by such
Portfolios (such as gains from the sale of debt securities and realized market
discount on tax-exempt Municipal Obligations).
In the case of corporate shareholders, distributions (other than capital
gain dividends) of a Portfolio for any taxable year generally qualify for the
70% dividends received deduction to the extent of the gross amount of
"qualifying dividends" received by such Portfolio for the year. Generally, a
dividend will be treated as a "qualifying dividend" if it has been received from
a domestic corporation. However, a dividend received by a taxpayer will not be
treated as a "qualifying dividend" if (1) it has been received with respect to
any share of stock that the taxpayer has held for 45 days (90 days in the case
of certain preferred stock) or less (excluding any day more than 45 days (or 90
days in the case of certain preferred stock) after the date on which the stock
becomes ex-dividend), or (2) to the extent that the taxpayer is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property. The Fund will
designate the portion, if any, of the distribution made by a Portfolio that
qualifies for the dividends received deduction in a written notice mailed by the
Fund to shareholders not later than 60 days after the close of the Portfolio's
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 distinctions in
the tax treatment of capital gain and ordinary income distributions. The nominal
maximum marginal rate on ordinary income for individuals, trusts and estates is
currently 31%, but for individual taxpayers whose adjusted gross income exceeds
certain threshold amounts (that differ depending on the taxpayer's filing
status) in taxable years beginning before
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1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000). Investors should be aware that any loss realized upon the sale,
exchange or redemption of shares held for six months or less will be treated as
a long-term capital loss to the extent any capital gain dividends have been paid
with respect to such shares.
Distributions of net investment income received by the Portfolios from
investments in debt securities will (except in the case of exempt interest
dividends distributed by the Municipal Money Market Portfolio) be taxable to
shareholders as ordinary income and will not be treated as "qualifying
dividends" for purposes of the dividends received deduction. Although the
Municipal Money Market Portfolio generally does not expect to receive net
investment income other than Tax-Exempt Interest and AMT Interest, up to 20% of
the net assets of each Portfolio may be invested in Municipal Obligations that
do not bear Tax-Exempt Interest or AMT Interest, and any taxable income
recognized by such Portfolios will be distributed and taxed to their
shareholders in accordance with the foregoing rules.
The Municipal Money Market Portfolio is designed to provide investors with
current tax-exempt interest income. Exempt interest dividends distributed to
shareholders by this Portfolio is not included in the shareholder's gross income
for regular Federal income tax purposes. In order for the Municipal Money Market
Portfolio to pay exempt interest dividends during any taxable year, at the close
of each fiscal quarter at least 50% of the value of such Portfolio must consist
of exempt interest obligations.
In addition, the Municipal Money Market Portfolio may not be appropriate
investments for entities which are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a nonexempt person who
regularly uses a part of such facilities in his trade or business and (a) whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenue derived by all users of such
facilities, (b) who occupies more than 5% of the entire usable area of such
facilities, or (c) for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S corporation and its shareholders.
A 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
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"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.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio is not deductible for income tax
purposes if (as expected) the Municipal Money Market Portfolio distributes
exempt interest dividends during the shareholder's taxable year. Receipt of
exempt interest dividends may result in collateral Federal income tax
consequences to certain other taxpayers, including persons subject to
alternative minimum tax (see Prospectus and discussion below), 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 advisers as to such consequences.
Corporate taxpayers may be liable for alternative minimum tax, which is
imposed at the rate of 20% of "alternative minimum taxable income" (less, in the
case of corporate shareholders with "alternative minimum taxable income" of less
than $310,000, the applicable "exemption amount"), in lieu of the regular
corporate income tax. "Alternative minimum taxable income" is equal to "taxable
income" (as determined for corporate income regular tax purposes) with certain
adjustments. Although corporate taxpayers in determining "alternative minimum
taxable income" are allowed to exclude exempt interest dividends (other than
exempt interest dividends derived from certain private activity bonds ("AMT
Preference Dividends"), as explained in the Prospectus) and to utilize the 70%
dividends received deduction at the first level of computation, the Code
requires (as a second computational step) that "alternative minimum taxable
income" be increased by 75% of the excess of "adjusted current earnings" over
other "alternative minimum taxable income."
Corporate shareholders will have to take into account (1) all exempt
interest dividends and (2) the full amount of all dividends from a Portfolio
that are treated as "qualifying dividends" for purposes of the dividends
received deduction in determining their "adjusted current earnings." As much as
75% of any exempt interest dividend and 82.5% of any "qualifying dividend"
received by a corporate shareholder could, as a consequence, be subject to
alternative minimum tax. Exempt interest dividends received by such a corporate
shareholder may accordingly be subject to alternative minimum tax at an
effective rate of 15%.
Corporate investors should also note that the Superfund Amendments and
Reauthorization Act of 1986 imposes an environmental tax on corporate taxpayers
of 0.12% of the excess of "alternative minimum taxable income" (with certain
modifications) over $2,000,000 for taxable years beginning after 1986 and before
1996, regardless of whether such taxpayers are liable for alternative minimum
tax.
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If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on Municipal Obligations in the case of the Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders. Investors should be aware that
any loss realized on a sale of shares of a Portfolio will be disallowed to the
extent an investor repurchases shares of the same Portfolio within a period of
61 days (beginning 30 days before and ending 30 days after the day of
disposition of the shares). Dividends paid by a Portfolio in the form of shares
within the 61-day period would be treated as a purchase for this purpose.
A shareholder will recognize gain or loss upon an exchange of shares of a
Non-Money Market Portfolio for shares of another Portfolio upon exercise of an
exchange privilege. Shareholders may not include the initial sales charge in the
tax basis of Non-Money Market Shares exchanged for shares of another Non-Money
Market Portfolio for the purpose of determining gain or loss on the exchange,
where the Non-Money Market Shares exchanged have been held 90 days or less. The
sales charge will increase the basis of the shares acquired through exercise of
the exchange privilege (unless the shares acquired are also exchanged for shares
of another Non-Market Money Portfolio within 90 days after the first exchange).
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% of their ordinary income for the calendar year plus 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year. The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year. Because each Portfolio intends to distribute all
of its taxable income currently, no Portfolio anticipates incurring any
liability for this excise tax. However, investors should note that a Portfolio
may in certain circumstances be required to liquidate investments in order to
make sufficient distributions to avoid excise tax liability.
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 of
the Municipal Money Market Portfolio) 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
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effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
SPECIAL TAX CONSIDERATIONS RELATING TO GOVERNMENT
SECURITIES PORTFOLIO
The following discussion relates to the particular Federal income tax
consequences of the investment policies of the Government Securities Portfolio.
The ability of this Portfolio to engage in options, short sale and futures
activities will be somewhat limited by the requirements for their continued
qualification as regulated investment companies under the Code, in particular
the Distribution Requirement, the Short-Short Gain Test and the Asset
Diversification Requirement.
The options transactions that the Government Securities Portfolio enter
into may result in "straddles" for Federal income tax purposes. The straddle
rules of the Code may affect the character of gains and losses realized by the
Portfolio. In addition, losses realized by the Portfolios on positions that are
part of a straddle may be deferred under the straddle rules, rather than being
taken into account in calculating the investment company taxable income and net
capital gain of the Portfolio for the taxable year in which such losses are
realized. Losses realized prior to October 31 of any year may be similarly
deferred under the straddle rules in determining the "required distribution"
that the Portfolio must make in order to avoid Federal excise tax. Furthermore,
in determining their investment company taxable income and ordinary income, the
Portfolios may be required to capitalize, rather than deduct currently, any
interest expense on indebtedness incurred or continued to purchase or carry any
positions that are part of a straddle. The tax consequences to the Portfolio of
holding straddle positions may be further affected by various annual and
transactional elections provided under the Code and Treasury regulations that
the Portfolio may make.
Because only a few regulations implementing the straddle rules have been
promulgated by the U.S. Treasury, the tax consequences to the Government
Securities Portfolio of engaging in options transactions are not entirely clear.
Nevertheless, it is evident that application of the straddle rules may
substantially increase or decrease the amount which must be distributed to
shareholders in satisfaction of the Distribution Requirement (or to avoid
Federal excise tax liability) for any taxable year in comparison
-43-
<PAGE>
to a fund that did not engage in options transactions. For purposes of the
Short-Short Gain Test, current Treasury regulations provide that (except to the
extent that the short sale rules discussed below would otherwise apply) the
straddle rules will have no effect on the holding period of any straddle
position. However, the U.S. Treasury has announced that it is continuing to
study the application of the straddle rules for this purpose.
The writer of a covered call option generally does not recognize income
upon receipt of the option premium. If the option expires unexercised or is
closed on an exchange, the writer generally recognizes short-term capital gain.
If the option is exercised, the premium is included in the consideration
received by the writer in determining the capital gain or loss recognized in the
resultant sale. However, options transactions that the Government Securities
Portfolio enter into, as well as futures transactions entered into by the
Government Securities Portfolio, will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year (i.e.,
marked-to-market), regardless of whether a taxpayer's obligations (or rights)
under such contracts have terminated (by delivery, exercise, entering into a
closing transaction or otherwise) as of such date. Any gain or loss recognized
as a consequence of the year-end marking-to-market of Section 1256 contracts is
combined (after application of the straddle rules that are described above) with
any other gain or loss that was previously recognized upon the termination of
Section 1256 contracts during that taxable year. The net amount of such gain or
loss for the entire taxable year is treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. Such short-term capital gain will
be included in determining the investment company taxable income of the relevant
Portfolio for purposes of the Distribution Requirement, even if it is wholly
attributable to the year-end marking-to-market of Section 1256 contracts that
the relevant Portfolio continues to hold. Investors should also note that
Section 1256 contracts will be treated as having been sold on October 31 in
calculating the "required distribution" that a Portfolio must make to avoid
Federal excise tax liability.
The Government Securities Portfolio may elect not to have the year-end
marking-to-market rule apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of such Portfolio that are not Section 1256
contracts (the "Mixed Straddle Election"). It is unclear under present law how
certain gain that the Portfolio may derive from trading in Section 1256
contracts for which a Mixed Straddle Election is not made will be treated for
purposes of the "Short-Short Gain Test." The Government Securities Portfolio may
seek a ruling from the Internal Revenue Service in order to resolve this issue.
Because of the Short-Short Gain Test, the Government Securities Portfolio
may have to limit the sale of appreciated (but not depreciated) securities that
they have held for less than three months. The short sale of (including for this
purpose the acquisition of a put option on) (1) securities held on the date of
the short sale or acquired after the short sale and on or before the date of
closing thereof or (2) securities which are "substantially
-44-
<PAGE>
identical" to securities held on the date of the short sale or acquired after
the short sale and on or before the date of the closing thereof may reduce the
holding period of such securities for purposes of the Short-Short Gain Test.
Any increase in value of a position that is part of a "designated hedge"
will be offset by any decrease in value (whether realized or not) of the
offsetting hedging position during the period of such hedge for purposes of the
Short-Short Gain Test. Thus, only the net gain (if any) from the designated
hedge will be included in gross income for purposes of the Short-Short Gain
Test. The Government Securities Portfolio anticipates engaging in hedging
transactions that qualify as designated hedges. However, because of the failure
of the U.S. Treasury to promulgate regulations as authorized by the Code, it is
not clear at the present time whether this treatment will be available for all
of the Portfolios' hedging transactions. To the extent the Portfolios'
transactions do not qualify as designated hedges, the Portfolios' investments in
short sales, options or other transactions may be limited.
For purposes of the Asset Diversification Requirement, the issuer of a call
option on a security (including an option written on an exchange) will be deemed
to be the issuer of the underlying security. The Internal Revenue Service has
informally ruled, however, that a call option that is written by a fund need not
be counted for purposes of the Asset Diversification Requirement where the fund
holds the underlying security. Under the Code, a fund may not rely on informal
rulings of the Internal Revenue Service issued to other taxpayers. Consequently,
the Government Securities Portfolio may find it necessary to seek a ruling from
the Internal Revenue Service on this issue or to curtail their writing of
covered call options in order to stay within the limits of the Diversification
Requirement.
For purposes of the Asset Diversification Requirement, the issuer of put or
call options on a U.S. Government securities (including options written on an
exchange) will be deemed to be the issuer of the underlying security, i.e., the
U.S. Government. Accordingly, the value of a put or call option held by the
Government Securities Portfolio will be aggregated with the value of U.S.
Government securities held by the Portfolio in determining whether the Asset
Diversification Requirement is satisfied.
The application of this rule in valuing options that are written by the
Government Securities Portfolio on U.S. Government Securities, which could be
considered in the nature of liabilities rather than of assets, is less certain.
The Internal Revenue Service has informally ruled that call options on a U.S.
Government security that are written by a fund need not be counted for purposes
of the Asset Diversification Requirement where the fund holds the underlying
U.S. Government security. However, the Internal Revenue Service has informally
ruled that a put option written by a fund must be treated as a separate asset
and its value measured by "the value of the underlying security" for purposes of
the Asset Diversification Requirement, regardless (apparently) of whether it is
"covered" under the rules of the exchange.
-45-
<PAGE>
The Internal Revenue Service has not explained whether in valuing a written
put option in this manner a fund should use the current value of the underlying
security (its prospective future investment); the cash consideration that must
be paid by the fund if the put option is exercised (its liability); or some
other measure that would take into account the fund's unrealized profit or loss
in writing the option. Because the policy of the Government Securities Portfolio
is to invest at all times at least 65% of its assets in U.S. Government
Securities (without regard to options), however, these uncertainties in the
application of the Asset Diversification Test are unlikely to affect the
Portfolio's investment decisions.
The Internal Revenue Service has informally ruled that interest rate
futures on certificates of deposit and commercial paper will be treated as
"self-issued" for purposes of the Asset Diversification Requirement, and that
the value of these interest rate futures is not the margin required to be placed
but the value of the contract. The Internal Revenue Service has also ruled
informally that interest rate futures on securities issued or guaranteed by the
U.S. Government and purchased or written put or call options on such futures
contracts constitute U.S. Government securities for purposes of the
Diversification Requirement. For this purpose, the Internal Revenue Service has
also issued an informal ruling that, generally: (1) an interest rate futures
contract on a U.S. Government security and a purchased put or call option on
such a futures contract will be assigned its value on the exchange; (2) a
written put or call option on an interest rate futures contract on a U.S.
Government security will be assigned the value of the futures contact to which
it relates. Under the Code, a fund may not rely on informal rulings of the
Internal Revenue Service issued to other taxpayers. Consequently, the Portfolio
may find it necessary to seek a ruling from the Internal Revenue Service on this
issue or to curtail its investments in interest rate futures in order to stay
within the limits of the Diversification Requirement.
-46-
<PAGE>
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, 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 COMMON STOCK, 100 million shares are classified as
Class COMMON STOCK, 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 AS CLASS SS COMMON STOCK (BOSTON PARTNERS
-47-
<PAGE>
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 E Common Stock, Class F Common Stock and Class P Common Stock
constitute the RBB Family Classes. Under the Fund's charter, the Board of
Directors has the power to classify or reclassify any unissued shares of Common
Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Bradford Family, the BEA Family, 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 Cash Preservation Family represents
interests in the Money Market and Municipal Money Market Portfolios; the Sansom
Street Family represents interests in the Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios; the Bedford Family
represents interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Portfolios; the
Bradford Family represents interests in
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<PAGE>
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 INTEREST IN THREE NON-MONEY MARKET PORTFOLIOS, THE BOSTON
PARTNERS FAMILY REPRESENTS INTEREST IN ONE NON-MONEY 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).
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<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.
<TABLE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and 12.7
(Class E) Robert J. Garvey
2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 29.6
& Howard Levine
67 Lanes Pond Road
Howell, NJ 07731
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
-55-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market Janney Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
JANNEY Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
</TABLE>
-56-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Janney Montgomery Scott Government Janney Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT OBLIGATIONS Philadelphia, PA 19103-1675
MONEY)
JANNEY Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
-57-
<PAGE>
APPENDIX
DESCRIPTION OF MOODY'S INVESTORS SERVICE'S CORPORATE BOND RATINGS
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 which 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.
A: Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S DEBT RATINGS
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 the highest rated 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. A: Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than debt in
higher rated categories.
DESCRIPTION OF MUNICIPAL NOTES RATINGS
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
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
GOVERNMENT SECURITIES PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------ ----------
AGENCY OBLIGATIONS--26.1%
Federal National Mortgage Association
7.050% 12/10/98 ...................... $ 250 $ 252,823
6.750% 08/24/00 ...................... 250 247,260
8.250% 12/18/00 ...................... 1,000 1,053,020
7.700% 08/10/04 ...................... 250 252,645
6.500% 11/29/05 ...................... 250 238,462
Federal Home Loan Mortgage Corp.
7.188% 09/15/99 ...................... 250 250,892
----------
TOTAL AGENCY OBLIGATIONS
(Cost $2,279,780) ................ 2,295,102
----------
MORTGAGE BACKED OBLIGATIONS--4.3%
Government National Mortgage Association
9.000% 08/24/00 ...................... 357 373,515
----------
TOTAL MORTGAGE BACKED OBLIGATIONS
(Cost $354,727) .................. 373,515
----------
UNITED STATES TREASURY OBLIGATIONS--67.9%
U.S. TREASURY BONDS--15.8%
7.250% 05/15/16 ...................... 250 249,700
8.500% 02/15/20 ...................... 1,000 1,136,180
----------
1,385,880
----------
U.S. TREASURY NOTES--34.7%
6.125% 05/31/97 ...................... 750 751,665
7.250% 02/15/98 ...................... 250 253,540
7.125% 10/15/98 ...................... 250 253,902
7.000% 04/15/99 ...................... 250 253,178
6.875% 07/31/99 ...................... 250 252,232
7.500% 10/31/99 ...................... 250 256,578
7.125% 02/29/00 ...................... 250 253,950
7.500% 05/15/02 ...................... 250 258,832
7.250% 08/15/04 ...................... 250 255,270
7.500% 02/15/05 ...................... 250 259,145
----------
3,048,292
----------
PAR
(000) VALUE
------- -----------
U.S. TREASURY BILLS--17.4%
4.980% 09/05/96 ................. $ 250 $ 249,928
5.140% 11/29/96 ................. 350 345,444
5.250% 11/29/96 ................. 250 246,745
5.020% 12/05/96 ................. 250 246,530
5.100% 12/05/96 ................. 250 246,531
5.085% 12/12/96 ................. 200 197,064
----------
1,532,242
----------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost $5,810,431) ........... 5,966,414
----------
TOTAL INVESTMENTS--98.3%
(Cost $8,444,938*) .............. 8,635,031
OTHER ASSETS IN EXCESS
OF LIABILITIES--1.7% ............ 149,671
----------
NET ASSETS (Applicable to 971,541
RBB Shares)--100.0% ............. $8,784,702
==========
NET ASSET VALUE AND REDEMPTION
PRICE PER SHARE
($8,784,702 (DIVIDE) 971,541) ... $9.04
=====
OFFERING PRICE PER SHARE
($9.04 (DIVIDE) .9525) .......... $9.49
=====
* Cost for Federal income tax purposes at August 31, 1996. The gross
appreciation (depreciation) on a tax basis is as follows:
Gross Appreciation ......... $257,107
Gross Depreciation ......... (67,014)
--------
Net Appreciation ........... $190,093
========
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
11
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
12
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
13
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
14
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
15
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
16
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT MUNICIPAL
SECURITIES MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Interest .............................. $ 660,462 $118,092,977 $15,900,230
----------- ------------ -----------
Expenses
Investment advisory fees .............. 39,247 7,702,090 1,409,660
Administration fees ................... 9,813 -- 428,209
Distribution fees ..................... 39,251 9,304,376 2,427,986
Service organization fees ............. -- 471,499 --
Directors' fees ....................... 173 38,473 7,715
Custodian fees ........................ 15,604 345,973 88,191
Transfer agent fees ................... 29,401 3,044,149 291,739
Legal fees ............................ 415 77,139 17,721
Audit fees ............................ 291 61,049 12,514
Registration fees ..................... 11,200 434,000 192,999
Insurance expense ..................... 210 43,932 9,056
Organization expense .................. 9,349 -- --
Printing fees ......................... 42,010 426,220 72,100
Miscellaneous ......................... 3,914 1,884 387
----------- ------------ -----------
200,878 21,950,784 4,958,277
Less fees waived ...................... (49,060) (3,543,632) (1,236,642)
Less expense reimbursement
by advisor ......................... (82,957) (342,158) (17,576)
----------- ------------ -----------
Total expenses ................... 68,861 18,064,994 3,704,059
----------- ------------ -----------
Net investment income ................. 591,601 100,027,983 12,196,171
----------- ------------ -----------
Realized and unrealized gain (loss)
on investments
Net realized gain (loss) on investments 749,135 (12,987) (674)
Increase in net unrealized
depreciation on investments ........ (1,036,871) -- --
----------- ------------ -----------
Net loss on investments ............... (287,736) (12,987) (674)
----------- ------------ -----------
Net increase in net assets resulting
from operations ....................... $ 303,865 $100,014,996 $12,195,497
=========== ============ ===========
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GOVERNMENT
SECURITIES PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------------- ---------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income ................... $ 591,601 $ 2,852,634 $ 100,027,983 $ 64,913,329
Net gain (loss) on investments .......... (287,736) 382,436 (12,987) (18,463)
----------- ----------- -------------- --------------
Net increase in net assets resulting
from operations ....................... 303,865 3,235,070 100,014,996 64,894,866
----------- ----------- -------------- --------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................ -- -- (49,874,649) (38,765,552)
Bradford Shares ....................... -- -- -- --
Cash Preservation shares .............. -- -- (10,092) (11,336)
Janney Montgomery Scott shares ........ -- -- (24,434,566) (4,784,092)
RBB shares ............................ (534,237) (2,609,620) (2,630) (2,530)
Sansom Street shares .................. -- -- (25,706,046) (21,349,819)
Distributions to shareholders from capital:
RBB shares ............................ (254,433) (834,878) -- --
----------- ----------- -------------- --------------
Total distributions to shareholders . (788,670) (3,444,498) (100,027,983) (64,913,329)
----------- ----------- -------------- --------------
Net capital share transactions ............ (1,244,286) (44,215,056) 374,464,737 736,630,198
----------- ----------- -------------- --------------
Total increase (decrease) in net assets ... (1,729,091) (44,424,484) 374,451,750 736,611,735
Net Assets:
Beginning of year ....................... 10,513,793 54,938,277 1,821,371,688 1,084,759,953
----------- ----------- -------------- --------------
End of year ............................. $ 8,784,702 $10,513,793 $2,195,823,438 $1,821,371,688
=========== =========== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income ................... $ 12,196,171 $ 9,691,756
Net gain (loss) on investments .......... (674) 7,009
------------ ------------
Net increase in net assets resulting
from operations ....................... 12,195,497 9,698,765
------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................ (5,960,711) (5,717,451)
Bradford Shares ....................... (3,611,114) (3,266,535)
Cash Preservation shares .............. (3,746) (5,648)
Janney Montgomery Scott shares ........ (2,620,457) (701,975)
RBB shares ............................ (143) (147)
Sansom Street shares .................. -- --
Distributions to shareholders from capital:
RBB shares ............................ -- --
------------ ------------
Total distributions to shareholders . (12,196,171) (9,691,756)
------------ ------------
Net capital share transactions ............ (1,864,843) 140,043,103
------------ ------------
Total increase (decrease) in net assets ... (1,865,517) 140,050,112
Net Assets:
Beginning of year ....................... 422,753,863 282,703,751
------------ ------------
End of year ............................. $420,888,346 $422,753,863
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995* AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 9.54 $ 9.69 $ 10.73 $ 10.46 $ 10.12
------- ------- --------- -------- -------
Income from investment operations:
Net investment income 0.5220 0.5819 0.5931 0.7080 0.8002
Net losses on securities (both realized
and unrealized) (0.2540) 0.0361 (0.8651) 0.3300 0.3408
------- ------- --------- -------- -------
Total from investment operations 0.2680 0.6180 (0.2720) 1.0380 1.1410
------- ------- --------- -------- -------
Less distributions
Dividends (from net investment income) (0.5220) (0.5819) (0.5901) (0.7080) (0.8010)
Distributions (from excess net
investment income) -- -- (0.0235) -- --
Return of capital (0.2460) (0.1861) (0.1544) (0.0600) --
------- ------- ------- ------- -------
Total distributions (0.7680) (0.7680) (0.7680) (0.7680) (0.8010)
------- ------- --------- -------- -------
Net asset value, end of year $ 9.04 $ 9.54 $ 9.69 $ 10.73 $ 10.46
======= ======= ========= ======== =======
Total return 2.75%(b) 6.72%(b) (2.60%)(b) 10.36%(b) 11.73(b)
Ratios/Supplemental Data
Net assets, end of year (000) $8,785 $10,514 $54,938 $36,296 $25,604
Ratios of expenses to average net assets .70%(a) .72%(a) .64%(a) .66%(a) .83%(a)
Ratios of net investment income to average
net assets 6.05% 6.59% 5.86% 6.70% 7.81%
Portfolio turnover rate 77% 86% 65% 47% 21%
<FN>
(a) Without the waiver of advisory, administration and custody fees and without
the reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Government Securities Portfolio would have been
2.05%, 1.22%, 1.10%, 1.22% and 1.22% for the years ended August 31, 1996,
1995, 1994, 1993 and 1992, respectively.
(b) Sales load not reflected in total return.
* Certain numbers were revised to conform to current year presentation.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ................. 0.0465 0.0482 0.0273 0.0238 0.0370
Net gains on securities (both
realized and unrealized) ............. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment
operations ........................ 0.0465 0.0482 0.0273 0.0238 0.0377
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) .............................. (0.0465) (0.0482) (0.0273) (0.0238) (0.0370)
Distributions (from capital
gains) ............................... -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ................ (0.0465) (0.0482) (0.0273) (0.0238) (0.0377)
-------- -------- -------- -------- --------
Net asset value, end of year ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ............................ 4.76% 4.93% 2.76% 2.41% 3.84%
Ratios /Supplemental Data
Net assets, end of year (000) ......... $61 $55 $45 $58 $74
Ratios of expenses to average
net assets ........................... 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a)
Ratios of net investment income
to average net assets ................ 4.65% 4.82% 2.73% 2.38% 3.70%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ................. 0.0272 0.0279 0.0172 0.0172 0.0264
Net gains on securities (both
realized and unrealized) ............. -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations ........................ 0.0272 0.0279 0.0172 0.0172 0.0264
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) .............................. (0.0272) (0.0279) (0.0172) (0.0172) (0.0264)
Distributions (from capital
gains) ............................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ................ (0.0272) (0.0279) (0.0172) (0.0172) (0.0264)
-------- -------- -------- -------- --------
Net asset value, end of year ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ............................ 2.76% 2.82% 1.73% 1.73% 2.67%
Ratios /Supplemental Data
Net assets, end of year (000) ......... $5 $5 $5 $5 $4
Ratios of expenses to average
net assets ........................... 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a) 1.00%(a)
Ratios of net investment income
to average net assets ................ 2.72% 2.79% 1.72% 1.72% 2.64%
<FN>
(a) Without the waiver of advisory and transfer agency 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 18.53%,
17.57%, 14.62%, 10.62% and 4.81% for the years ended August 31, 1996, 1995,
1994, 1993 and 1992, respectively. For the Municipal Money Market
Portfolio, the ratios of expenses to average net assets would have been
216.12%, 162.20%, 154.22%, 191.54% and 250.95% for the years ended August
31, 1996, 1995, 1994, 1993 and 1992, respectively.
(b) Financial Highlights relate solely to the RBB Class of shares within each
portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988, and currently has seventeen
investment Portfolios, three of which are included in these financial
statements.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion are currently classified into sixty-six classes. Each class
represents an interest in one of seventeen investment portfolios of the Fund.
The classes have been grouped into fifteen separate "families", eight of which
have begun investment operations: the RBB Family, the BEA Family, the Sansom
Street Family, the Bedford Family, the Cash Preservation Family, the Janney
Montgomery Scott Money Family, the n/i Family, and the Bradford Family. The RBB
Family represents interests in three portfolios, which are covered in this
report.
A) SECURITY VALUATION -- Government Securities Portfolio:
Portfolio securities for which market quotations are readily available are
valued at market value, which is currently determined using the last
reported sales price. If no sales are reported, as in the case of some
securities traded over-the-counter, portfolio securities are valued at the
mean between the last reported bid and asked prices. Corporate bonds,
tax-exempt bonds and notes, and government securities are valued on the
basis of quotations provided by an independent pricing service which uses
information with respect to transactions on bonds, quotations from bond
dealers, market transactions in comparable securities and various
relationships between securities in determining value. Short-term
obligations with maturities of 60 days or less are valued at amortized cost
which approximates market value.
Money Market Portfolio and Municipal Money Market Portfolio:
Portfolio securities are valued under the amortized cost method, which
approximates current market value. Under this method, securities are valued
at cost when purchased and thereafter a constant proportionate amortization
of any discount or premium is recorded until maturity of the security.
Regular review and monitoring of the valuation is performed in an attempt
to avoid dilution or other unfair results to shareholders. These portfolios
seek to maintain net asset value per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agent and printing, are class specific expenses and vary by class. Expenses
not directly attributable to a specific portfolio or class are allocated
based on relative net assets of each portfolio and class, respectively.
C) DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Government
Securities Portfolio: Dividends from net investment income from each
portfolio are declared and paid at least monthly. Money Market Portfolio
and Municipal Money Market Portfolio: Dividends from net investment income
are declared daily and paid monthly. For all portfolios, any net realized
capital gains will be distributed at least annually. Income distributions
and capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of
mortgage-backed securities.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
21
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corp. ("PIMC"), a wholly owned subsidiary of PNC Asset Management Group, Inc.,
which is in turn a wholly owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for each of the three portfolios
described herein.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on a portfolio's average daily net
assets:
PORTFOLIO ANNUAL RATE
----------------------- -------------------------------------------------
Government Securities .40% of first $250 million of net assets;
Portfolio .35% of next $250 million of net assets;
and .30% of net assets in excess of $500 million.
Money Market .45% of first $250 million of net assets;
Portfolio .40% of next $250 million of net assets;
and .35% of net assets in excess of $500 million.
Municipal Money Market .35% of first $250 million of net assets;
Portfolio .30% of next $250 million of net assets;
and .25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for any of the portfolios. For each class of shares within a
respective portfolio, the net advisory fee charged to each class is the same on
a relative basis. For the year ended August 31, 1996, advisory fees and waivers
for each of the three investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ----------- ----------
<S> <C> <C> <C>
Government Securities Portfolio $ 39,247 $ (39,247) $ --
Money Market Portfolio 7,702,090 (3,527,715) 4,174,375
Municipal Money Market Portfolio 1,409,660 (1,218,973) 190,687
</TABLE>
PNC Bank serves as the sub-advisor for the Money Market and Municipal Money
Market Portfolios. The Government Securities Portfolio has no sub-advisor. PNC
Bank, as sub-advisor, receives a fee directly from PIMC, not the portfolios. In
addition, PNC Bank serves as custodian for each of the Fund's portfolios. PFPC
Inc.("PFPC"), an indirect wholly-owned subsidiary of PNC Bank, serves as each
class's transfer and disbursing agent.
22
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the three
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
-------------- ------------- ---------------
<S> <C> <C> <C>
Government Securities Portfolio
RBB Class $ 29,401 $ -- $ 29,401
========== ========= ==========
Money Market Portfolio
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery
Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- --------- ----------
Total Money Market Portfolio $3,044,149 $ (15,917) $3,028,232
========== ========= ==========
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery
Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
---------- --------- ----------
Total Municipal Money Market Portfolio $ 291,739 $ (17,669) $ 274,070
========== ========= ==========
</TABLE>
In addition, PFPC serves as administrator for the Government Securities and
Municipal Money Market Portfolios. The administration fee is computed daily and
payable monthly at the annual rate of .10% of each Portfolio's average daily net
assets. PFPC may, at its discretion, voluntarily waive all or any portion of its
administration fee for the Portfolios. For the year ended August 31, 1996,
administration fees and waivers for the two portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------------- --------------
<S> <C> <C> <C>
Government Securities Portfolio $ 9,813 $(9,813) $ --
Municipal Money Market Portfolio 428,209 -- 428,209
</TABLE>
The Fund, on behalf of each class of shares within the investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott and RBB Classes, and up to .20% on an
annualized basis for the Sansom Street Class.
23
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31, 1996, distribution fees for each class of
shares within the three investment portfolios were as follows:
DISTRIBUTION
FEE
------------
Government Securities Portfolio
RBB Class $ 39,251
==========
Money Market Portfolio
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
---------
Total Money Market Portfolio $9,304,376
==========
Municipal Money Market Portfolio
Bedford Class $1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
----------
Total Municipal Money Market Portfolio $2,427,986
==========
The fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
NOTE 3. PURCHASE AND SALES OF SECURITIES
For the year ended August 31, 1996, purchases and sales of investment
securities and United States Government Obligations(other than short-term
investments) were as follows:
<TABLE>
<CAPTION>
INVESTMENT SECURITIES U.S. GOVERNMENT OBLIGATIONS
------------------------------ -----------------------------
PURCHASES SALES PURCHASES SALES
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Government Securities Portfolio $ -- $ -- $ 6,752,009 $ 8,389,229
</TABLE>
24
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. CAPITAL SHARES
Transactions in capital shares for each year were as follows:
<TABLE>
<CAPTION>
GOVERNMENT SECURITIES PORTFOLIO
-------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
---------------------------- ----------------------------
SHARES VALUE SHARES VALUE
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold:
RBB Class 18,278 $ 167,759 9,203 $ 88,182
Shares issued in reinvestment of dividends:
RBB Class 50,559 478,224 78,459 744,477
Shares repurchased:
RBB Class (198,915) (1,890,269) (4,653,758) (45,047,715)
----------- ----------- ----------- ------------
Net decrease (130,078) $(1,244,286) (4,566,096) $(44,215,056)
=========== =========== =========== ============
RBB Shares authorized 100,000,000 100,000,000
=========== ===========
</TABLE>
25
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. CAPITAL SHARES (CONTINUED)
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
------------------------------------- ------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277 $ 1,022,457,772 $ 1,104,088,188
Bradford Class -- -- 479,401,891 474,166,249
Cash Preservation Class 122,344 84,527 171,907 175,548
Janney Montgomery
Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881
RBB Class 584,206 31,504 69,480 5,004
Sansom Street Class 2,191,596,362 1,864,628,110 -- --
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408
Bradford Class -- -- 3,506,714 3,126,860
Cash Preservation Class 10,084 11,226 3,515 5,478
Janney Montgomery
Scott Class 24,077,173 4,534,944 2,602,869 662,565
RBB Class 2,625 2,500 143 146
Sansom Street Class 18,389,361 16,689,941 -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142)
Bradford Class -- -- (464,445,579) (466,448,018)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601)
Janney Montgomery
Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391)
RBB Class (580,821) (23,917) (69,419) (5,072)
Sansom Street Class (2,127,237,313) (1,813,444,951) -- --
--------------- --------------- --------------- ---------------
Net increase (decrease) $ 374,464,737 $ 736,630,198 $ (1,864,843) $ 140,043,103
=============== =============== =============== ===============
RBB Shares authorized 500,000,000 500,000,000 500,000,000 500,000,000
=============== =============== =============== ===============
</TABLE>
26
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GOVERNMENT MUNICIPAL
SECURITIES MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
----------- -------------- ------------
<S> <C> <C> <C>
Capital Paid-In
Bedford Class -- $1,109,351,734 $202,009,609
Bradford Class -- -- 129,398,582
Cash Preservation Class -- 202,360 115,765
Janney Montgomery Scott Class -- 561,873,247 89,426,172
RBB Class $13,057,316 61,412 5,143
Sansom Street Class -- 524,367,399 --
Other Classes -- 800 800
Accumulated Net Realized Gain (Loss) on Investments
Bedford Class -- (17,400) (69,803)
Bradford Class -- -- 339
Cash Preservation Class -- (3) 5
Janney Montgomery Scott Class -- (7,821) 1,734
RBB Class (4,462,706) (1) --
Sansom Street Class -- (8,289) --
Unrealized Appreciation on Investments
Bedford Class -- -- --
Bradford Class -- -- --
Cash Preservation Class -- -- --
Janney Montgomery Scott Class -- -- --
RBB Class 190,092 -- --
Sansom Street Class -- -- --
----------- -------------- ------------
$ 8,784,702 $2,195,823,438 $420,888,346
=========== ============== ============
</TABLE>
NOTE 6. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $4,462,706 in the Government Securities Portfolio of
which $602,716 expires in 1999, $764,714 expires in 2000, $750,038 expires in
2002, $2,345,238 expires in 2003; $33,513 in Money Market Portfolio of which
$2,062 expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004;
$67,725 in the Municipal Money Market Portfolio of which $55,760 expires in
1999, $444 expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002 and
$674 expires in 2004.
27
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 7. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interest in the Money Market Portfolio: Bedford, Cash Preservation, Janney
Montgomery Scott and Sansom Street. The Fund currently offers four other classes
of shares representing interest in the Municipal Money Market Portfolio:
Bedford, Bradford, Cash Preservation and Janney Montgomery Scott. Each class is
marketed to different types of investors. Financial Highlights of the Cash
Preservation class is not presented in this report due to its immateriality.
Such information is available in the annual reports of the Cash Preservation
family. The financial highlights of certain of the other classes are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ........... 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ....... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations .................. 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................ (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital
gains) ......................... -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions .......... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return ...................... 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ... $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets ..................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets .......... 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ........... 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) ....... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................ (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital
gains) ......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ...................... 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ... $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets ..................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets .......... 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%,
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993, and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%,
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
28
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 7. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ---------
Income from investment operations:
Net investment income ................. 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- -------- ---------
Total from investment operations .... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- -------- ---------
Less distributions
Dividends (from net investment income) (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- -------- ---------
Total distributions ................. (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- -------- ---------
Net asset value, end of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =========
Total Return ............................. 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ....... $129,399 $110,936 $100,089 $76,975 $69,586
Ratios of expenses to average net assets .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets .................. 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
29
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 7. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
---------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations:
Net investment income .............................. 0.0465 0.0112 0.0278 0.0063
-------- -------- -------- --------
Total from investment operations ................ 0.0465 0.0112 0.0278 0.0063
-------- -------- -------- --------
Less distributions
Dividends (from net investment income) ............. (0.0465) (0.0112) (0.0278) (0.0063)
-------- -------- -------- --------
Total distributions ............................. (0.0465) (0.0112) (0.0278) (0.0063)
-------- -------- -------- --------
Net asset value, end of period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return .......................................... 4.76% 5.30%(b) 2.81% 2.87%(b)
Ratios /Supplemental Data
Net assets, end of period (000) .................... $561,865 $443,645 $ 89,428 $113,226
Ratios of expenses to average net assets ........... 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets ................................ 4.65% 5.04%(b) 2.78% 2.83%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.23% for the year ended
August 31, 1996 and 1.23% annualized for the period ended August 31, 1996.
For the Municipal Money Market Portfolio, the ratio of expenses to average
net assets would have been 1.23% for the year ended August 31, 1996 and
1.30% annualized for the period ended August 31, 1995.
(b) Annualized.
</FN>
</TABLE>
30
<PAGE>
THE RBB FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 7. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- --------
Income from investment operations:
Net investment income .................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) ........................ -- -- -- -- 0.0007
-------- -------- ------- -------- --------
Total from investment operations ...... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- ------- -------- --------
Less distributions
Dividends (from net investment income) ... (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains) ....... -- -- -- -- (0.0007)
-------- -------- ------- -------- --------
Total distributions ................... (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- ------- -------- --------
Net asset value, end of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ............................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year .................. $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets . .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to
average net assets ...................... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
31
<PAGE>
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.
- ---------------------------------------------------
CONTENTS
PAGE
INTRODUCTION .............................. 2
FINANCIAL HIGHLIGHTS ...................... 4
INVESTMENT OBJECTIVES AND POLICIES ........ 7
PURCHASE AND REDEMPTION OF SHARES ......... 14
NET ASSET VALUE ........................... 19
MANAGEMENT ................................ 20
DISTRIBUTION OF SHARES .................... 22
DIVIDENDS AND DISTRIBUTIONS ............... 23
TAXES ..................................... 23
DESCRIPTION OF SHARES ..................... 24
OTHER INFORMATION ......................... 25
ACCOUNT APPLICATION ....................... Center
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
CASH PRESERVATION PORTFOLIOS
[GRAPHIC OMITTED]
CASH PRESERVATION PORTFOLIOS
OF
THE RBB FUND, INC.
The Cash Preservation Portfolios consist of two classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively the "Cash Preservation Shares" or "Shares")
offered by this Prospectus represent interests in a taxable money market
portfolio and a municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
Money Market Portfolio--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of principal.
It seeks to achieve such objective by investing in a diversified portfolio of
U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
municipal obligations, the interest on which is exempt from the regular Federal
income tax but which may constitute an item of tax preference for purposes of
the Federal alternative minimum tax.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, PNC Bank, National Association or any other bank and shares are not
federally insured by the Federal Deposit Insurance Corporation, The Federal
Reserve Board, or any other agency. Investments in shares of the Fund involve
investment risks, including the possible loss of principal. There can be no
assurance that the Portfolios will be able to maintain a stable net asset value
of $1.00 per share.
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 Portfolios and
custodian for the Fund and PFPC Inc. serves as the administrator of the
Municipal Money Market Portfolio and 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the two classes of the Fund's shares
(collectively, the "Cash Preservation Classes") offered by this Prospectus
represents interests in one of the following of such investment portfolios: the
Money Market Portfolio and the Municipal Money Market Portfolio (formerly, the
Tax-Free 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. 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 Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular Federal income tax but which may constitute an item of
tax preference for purposes of the Federal alternative minimum tax.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios 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 Portfolios and serves as custodian to the Fund, and PFPC Inc. ("PFPC")
serves as the administrator to the Municipal Money Market Portfolio and 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 either of the Cash
Preservation Classes by mail, bank wire or by payment from insurance policies.
An investor may redeem Shares of either of the Cash Preservation Classes by
mail, Fund check, or by telephone.
An investment in either of the Cash Preservation Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." The Fund was created in 1988 and its investment portfolios commenced
operations on or after September 30, 1988. Either or both of the Portfolios, 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 securities on a "when-issued" or "forward
commitment" basis and the purchase of stand-by commitments. 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 Cash
Preservation Shares, please refer to the section of this Prospectus entitled
"Purchase and Redemption of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Fee Table
Annual Fund Operating Expenses (Cash Preservation Classes)
After Expense Reimbursements and Waivers(2) Municipal
Money Market Money Market
Portfolio Portfolio
-------------- --------------
<S> <C> <C>
Management fees (after waivers)(1) .20% .05%
12b-1 fees (after waivers)(1) .40 .40
Other Expenses (after reimbursements) .35 .53
---- ----
Total Fund Operating Expenses (Cash Preservation Classes) (after waivers
and reimbursements) .95% .98%
=== ===
</TABLE>
(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
and Municipal Money Market Portfolio, Management fees would be .37% and
.33%, respectively, 12b-1 fees would be .40% and .40%, respectively; Other
Expenses would be 11.31% and 18.47%, respectively and Total Fund Operating
Expenses would be 12.08% and 19.20% respectively.
Example*
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Money Market............................. $10 $30 $53 $117
Municipal Money Market................... $10 $31 $54 $120
</TABLE>
* Other classes of these Portfolios 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
(Cash Preservation Classes) 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 Cash Preservation Classes 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 costs and fees charged to each class. The Fee Table reflects a
voluntary waiver of Management fees for each Portfolio. However, there can be no
assurance that any future waivers of Management fees will not vary from the
figure reflected in the Fee Table. In addition, the investment adviser is
currently voluntarily assuming additional expenses of the Portfolios. There can
be no assurance that the investment adviser will continue to assume such
expenses. Assumption of additional expenses will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
3
<PAGE>
From time to time a Portfolio advertises its "yield" and "effective yield."
Both yield figures are based on historical earnings and are not intended to
indicate future performance. The "yield" of a Portfolio refers to the income
generated by an investment in a Portfolio over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The Municipal Money Market
Portfolio's "tax-equivalent yield" may also be quoted from time to time, which
shows the level of taxable yield needed to produce an after-tax equivalent to
such Portfolio's tax-free yield. This is done by increasing such Portfolio's
yield (calculated as above) by the amount necessary to reflect the payment of
Federal income tax at a stated tax rate.
The yield of any investment is generally a function of portfolio quality
and maturity, type of investment and operating expenses. The yield on Shares of
either of the Cash Preservation Classes 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 the Cash Preservation Classes
are not reflected in the yields of the Cash Preservation Shares, and such fees,
if charged, will reduce the actual return received by shareholders on their
investments. The yield on Shares of the Cash Preservation Classes may differ
from yields on shares of other classes of the Fund that also represent interests
in the same Portfolio depending on the allocation of expenses to each of the
classes of that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Cash Preservation Classes representing interests in the Money
Market and Municipal Money Market Portfolios for the years indicated. The
financial data included in this table for each of the periods ended August 31,
1992 through August 31, 1996 are a part of the Fund's financial statements for
each of the Portfolios 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 each such Portfolio for the periods ended August 31, 1989,
1990 and 1991 are a part of previous financial statements audited by Coopers &
Lybrand L.L.P. The financial data included in this table should be read in
conjunction with the financial statements and related notes included in the
Statement of Additional Information.
4
<PAGE>
CASH PRESERVATION CLASSES
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
<TABLE>
<CAPTION>
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)
Money Market Portfolio
------------------------------------------------------------------------------------------------------
For the Period
September 30, 1988
For the For the For the For the For the For the For the (Commencement
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended of Operations)to
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- -------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0471 0.0487 0.0278 0.0243 0.0375 0.0626 0.0763 0.0780
Net gains on securities
(both realized
and unrealized) -- -- -- -- 0.0007 -- -- --
-------- -------- -------- -------- -------- ------- -------- --------
Total from investment
operations 0.0471 0.0487 0.0278 0.0243 0.0382 0.0626 0.0763 0.0780
-------- -------- ------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income) (0.0471) (0.0487) (0.0278) (0.0243) (0.0375) (0.0626) (0.0763) (0.0780)
Distributions (from
capital gains) -- -- -- -- (0.0007) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.0471) (0.0487) (0.0278) (0.0243) (0.0382) (0.0626) (0.0763) (0.0780)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= =======
Total Return 4.81% 4.98% 2.81% 2.46% 3.89% 6.45% 7.90% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) $ 202 $ 236 $ 231 $ 1,229 $ 1,233 $ 1,412 $ 1,799 $ 2,213
Ratios of expenses to
average net assets .95%(a) .95%(a) .95%(a) 95%(a) .95%(a) .95%(a) .94%(a) .95%(a)(b)
Ratios of net investment
income to average
net assets 4.71% 4.87% 2.78% 2.43% 3.75% 6.26% 7.63% 8.59%(b)
</TABLE>
(a) Without the waiver of advisory and transfer agency fees and
without the reimbursement of certain operating expenses, the
ratios of expenses to average net assets for Money Market
Portfolio would have been 12.08%, 9.34%, 2.52%, 2.25%,
2.30%, 2.13% and 1.69% for the years ended August 31, 1996,
1995, 1994, 1993, 1992, 1991, 1990, respectively, and 1.59%
annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Cash Preservation
Class of Shares within the portfolio.
5
<PAGE>
<TABLE>
<CAPTION>
Cash Preservation Classes
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)
Municipal Money Market Portfolio
----------------------------------------------------------------------------------------------------------
For the Period
September 30, 1988
For the For the For the For the For the For the For the (Commencement of
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Operations)
August 31, August 31, August 31, August 31, August 31, August 31, August 31, August 31,
1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0274 0.0281 0.0174 0.0174 0.0266 0.0408 0.0499 0.0497
Net gains
on securities
(both realized
and unrealized) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total from
investment
operations 0.0274 0.0281 0.0174 0.0174 0.0266 0.0408 0.0499 0.0497
------- ------- ------- ------- ------- ------- ------- -------
Less distributions
Dividends (from net
investment income) (0.0274) (0.0281) (0.0174) (0.0174) (0.0266) (0.0408) (0.0499) (0.0497)
Distributions (from
capital gains) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total
distributions (0.0274) (0.0281) (0.0174) (0.0174) (0.0266) (0.0408) (0.0499) (0.0497)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= =======
Total Return 2.78% 2.84% 1.75% 1.75% 2.69% 4.16% 5.11% 5.53%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) $ 116 $ 161 $ 201 $ 157 $ 214 $ 281 $ 236 $ 36
Ratios of expenses to
average net assets .98%(a) .98%(a) .98%(a) .98%(a) .98%(a) .97%(a) .98%(a) .94%(a)(b)
Ratios of net
investment
income to average
net assets 2.74% 2.81% 1.74% 1.74% 2.66% 4.08% 4.99% 5.49%(b)
</TABLE>
(a) Without the waiver of advisory, administration and transfer agency fees and
without the reimbursement of certain operating expenses, the ratios of expenses
to average net assets for the Municipal Money Market Portfolio, would have been
19.20%, 10.80%, 11.52%, 8.95%, 5.91%, 5.59% and 15.08% for the years ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991, 1990, respectively, and 51.02%
annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Cash Preservation Class of Shares
within the portfolio.
6
<PAGE>
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
("SAI"). 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 major corporations without registration under the
Securities Act of 1933 (the "1933 Act") in reliance on the exemption from such
registration afforded by Section 3(a)(3) thereof, and commercial paper issued in
reliance on the so-called "private placement" exemption from registration which
is afforded by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2)
paper is restricted as to disposition under the Federal securities laws in that
any resale must similarly be made in an exempt transaction. Section 4(2) paper
is normally resold to other institutional investors through or with the
assistance of investment dealers who make a market in Section 4(2) paper, thus
providing liquidity.
Commercial paper purchased by the Portfolio may include instruments issued
by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
Variable Rate Demand Notes. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there may be no active secondary market in the
notes, the Portfolio will be able (at any time or during 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
7
<PAGE>
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 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."
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 issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio."
8
<PAGE>
Guaranteed Investment Contracts. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
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 Money Market 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 Portfolios' adviser
pursuant to guidelines adopted by the Board of Directors. Eligible securities
generally include: (1) U.S. Government securities, (2) securities that are rated
at the time of purchase in the two highest rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") (e.g.,
commercial paper rated "A-1" or "A-2" by S&P, (3) securities that are rated at
the time of purchase by the only NRSRO rating the security in one of its two
highest rating categories for such securities, and (4) securities that are not
rated and are issued by an issuer that does not have comparable obligations
rated by an NRSRO ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed liquid 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 objectives 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.")
9
<PAGE>
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 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.
10
<PAGE>
Municipal Money Market Portfolio
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Interest").
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source, such as the user of the facility
being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by a
Portfolio, the Portfolio may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding 397 calendar days, depending upon the instrument involved. The absence
of such an active secondary market, however, could make it difficult for the
Portfolio to dispose of a variable rate demand note if the issuer defaulted on
its payment obligation or during the periods that the Portfolio is not entitled
to exercise its demand rights. The Portfolio could, for this or other reasons,
suffer a loss to the extent of the default. The Portfolio invests in variable
rate demand notes only when the Portfolio's investment adviser deems the
investment to involve minimal credit risk. The Portfolio's investment adviser
also monitors the continuing creditworthiness of issuers of such notes to
determine whether the Portfolio should continue to hold such notes.
11
<PAGE>
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability an interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, such Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
When-Issued Securities. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies -- Money Market Portfolio -- When-Issued Securities."
Stand-by Commitments. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies -- Money Market Portfolio -- Stand-by
Commitments."
Eligible Securities. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies -- Eligible Securities -- Money Market
Portfolio".
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, 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 deemed liquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities
12
<PAGE>
under the supervision of the Board of Directors. See "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
the affirmative vote of the holders of a majority of the Portfolio's outstanding
shares. 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 Municipal
Money Market Portfolio will be achieved. The Portfolio may not, however, change
the following investment limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary purposes 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 the lesser of the dollar amounts
borrowed or 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,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
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<PAGE>
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Purchase Procedures
Cash Preservation Shares are sold without a sales load on a continuous
basis by the Distributor. The Distributor is located at 466 Lexington Avenue,
New York, New York.
Investors may purchase Cash Preservation Shares by mail, bank wire or
exchange from another Cash Preservation Class as described below. The minimum
initial investment in each Portfolio is $1,000. Subsequent investments must be
at least $100 ($1,000 if the investment is transmitted by bank wire). The Fund
reserves the right to reject any purchase order.
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
receipt of the order and Federal Funds are available to the Fund. Purchase
orders received after its close of business are priced at the net asset value
next determined on the following Business day. In those cases in which an
investor pays for shares by check, Federal Funds will generally become available
two Business Days after a purchase order and the completed application is
received. Purchase orders for shares are accepted only on days on which both the
New York Stock Exchange (the "NYSE") and the Federal Reserve Bank of
Philadelphia (the "FRB") are open ("Business Days").
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.
Initial Investment
BY MAIL--You may purchase Shares in either of the Cash Preservation Classes
by mail by fully completing and signing the attached application (the
"Application"), specifying the Portfolio in which you wish to invest, and
mailing it, together with a check payable to the order of "Cash Preservation"
c/o PFPC, P.O. Box 8916, Wilmington, Delaware 19899. The check must also specify
the Portfolio in which you wish to invest. An Application will be returned to an
investor unless it contains the name of the Authorized Dealer from whom it was
obtained.
BY BANK WIRE--You may purchase Shares in either of the Cash Preservation
Classes by having your bank wire Federal Funds to the Fund's Custodian, PNC
Bank. Your bank may impose a charge for this service. In order to ensure prompt
receipt of your Federal Funds wire, it is important that you follow these steps:
A. Telephone the Fund's transfer agent, PFPC, toll-free (800) 430-9618 and
provide it with your name, address, telephone number, Social Security or Tax
Identification Number, the Cash Preservation Class selected, the amount being
wired, and by which bank. PFPC will then provide you 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 to wire the specified amount, together with your
assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
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. An Application will be returned to an investor unless it
contains the name of the Authorized Dealer from whom it was obtained.
14
<PAGE>
Federal Funds must be received by PFPC by 12:00 noon Eastern Time for it to
process an order as of 12:00 noon on such day. Federal Funds received after
12:00 noon but prior to 4:00 p.m. Eastern Time on a Business Day will be
processed as of 4:00 p.m. Eastern Time on that Business Day but the Shares
acquired will not be entitled to receive dividends declared on such Business
Day. Federal Funds received after 4:00 p.m. Eastern Time on a Business Day will
be processed as of 12:00 noon Eastern Time on the following Business Day.
BY PAYMENT FROM INSURANCE POLICIES--If you are a recipient of certain
insurance policy payments, you may purchase Shares by fully completing and
signing an Application, including the section which authorizes your insurance
company to forward policy payments to the Cash Preservation Class indicated on
the Application, and mailing it to PFPC at the address shown thereon. An
Application will be returned to an investor unless it contains the name of the
Authorized Dealer from whom it was obtained.
BY EXCHANGE--Shareholders who wish to exchange Shares of one Cash
Preservation Class for another Cash Preservation Class may do so by mail or by
telephone. The Fund and PFPC reserve the right to limit, amend or terminate
these exchange privileges at any time upon 60 days written notice to
shareholders. No exchange fee is currently imposed for exchanges; however, the
Fund reserves the right to charge shareholders an exchange fee of $5.00 for each
exchange. In the case of shareholders holding share certificates, the
certificates must accompany the request for an exchange.
FOR EXCHANGES
BETWEEN CASH PRESERVATION CLASSES
AND OTHER PARTICIPATING CLASSES OF THE FUND
Authorization and Agreement
The investor authorizes PFPC Inc. ("PFPC") to accept and act conclusively
upon telephone or written instructions from myself, anyone other than myself
representing himself to be me, or any person purporting to represent me in
effecting exchanges of shares of one or more Cash Preservation Classes for which
such an exchange is available for shares of any of the non-money market classes
of Common Stock of the RBB Family of classes of the Fund (the "Participating
Classes") of the Fund for which such an exchange is available. I understand and
agree to indemnify and hold harmless PFPC and the Fund from any losses,
expenses, costs, damages, charges, counsel fees, litigation costs and liability
arising directly from any act or omission to act hereunder not occasioned by
their gross negligence or willful misconduct. I understand that the exchange
privilege may be modified or terminated at any time by the Fund upon 60 days
written notice to shareholders. I also understand that this privilege is subject
to conditions set forth herein and the provisions of the current prospectus of
the Cash Preservation Classes and the Participating Classes as amended from time
to time. For each exchange, I will have received and perused a copy of the then
current prospectus of the Participating Class being purchased.
In the case of a shareholder other than an individual, I further certify
that the persons signing have been duly elected or appointed and are now legally
holding the titles opposite their names and that the organization is duly
organized and existing and has the power to authorize the expedited exchange,
and the organization will notify PFPC of any change in such authority.
This Authorization shall not be effective until received by PFPC in the
State of Delaware and shall in all respects be interpreted, enforced and
governed under the laws of said State. In consideration of PFPC's agreeing, and
to induce PFPC to agree, to accept telephone instructions hereunder, the
increased responsibility hereby accepted by PFPC and the fact that Shareholders
in the Fund are located throughout the nation in numerous jurisdictions, any
suit, claim or action hereunder against PFPC shall have as its sole venue the
County of New Castle, State of Delaware.
If any provision of this Authority is declared by any court to be illegal
or invalid, the validity of the remaining parts shall not be affected thereby,
and the illegal or invalid portion shall be deemed stricken from the
Authorization.
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<PAGE>
Conditions
1) Telephone exchange instructions received on any day on which both the New
York Stock Exchange (the "NYSE") and the Federal Reserve Bank of
Philadelphia are open (a "Business Day") prior to the closing of the NYSE
will be effected at the public offering price (which includes the
applicable sales charge) of the Participating Class next determined after
PFPC's receipt of such exchange request. See the current prospectus of the
Participating Classes for applicable sales charges.
2) Telephone exchange instructions should be made by dialing 800-430-9618 and
written instructions (together with any share certificates issued to the
investor) should be sent to PFPC, P.O. Box 8916, Wilmington, DE 19899.
3) If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment
requirement of the Participating Class being acquired.
4) Any new account established through the exchange privilege will have the
same account information and options except as stated in the current
prospectus by the Participating Class and will be subject to this
authorization.
5) Shares represented by share certificates cannot be exchanged by telephone
but must be forwarded to PFPC and deposited into the customer's account
before being exchanged. (It is recommended that share certificates be sent
by registered or certified mail. If certificates are not endorsed, the
investor must send to PFPC a signed stock power under separate cover. See
"How to Redeem Shares -- Normal Redemption" in the Cash Preservation
Classes' currently effective prospectus for a discussion of when such
signatures must be guaranteed.)
6) Shareholders should contact their tax advisers as to the tax implications
of an exchange.
7) Shares may not be exchanged unless an exchange privilege is offered
pursuant to the Cash Preservation Classes' currently effective prospectus.
8) I understand and agree that any ambiguity will be at my risk. PFPC may in
its discretion record any telephone calls made hereunder.
9) I agree personally, or to cause my representative, to verify the accuracy
of all confirmations of exchanges and promptly advise PFPC of any
inaccuracy therein within one (1) Business Day of receipt of the
confirmation or, if a confirmation is not received within five (5) days
from the date any instruction to exchange was given, of the non-receipt of
any confirmation. In no event shall PFPC or the Fund be liable for any
harm whatsoever occurring after the time notification from me or my
representative is required hereunder in the event PFPC is not timely
advised of the inaccuracy or non-receipt of a confirmation.
10) I agree that my ability to exchange under this authorization may be
cancelled, modified or restricted at any time indiscriminately at the sole
discretion of the Fund on 60 days written notice.
11) All references to the singular include the plural and vice-versa.
References to gender include the other gender and neuter.
Exchange by Mail--Send a written request (together with any share
certificates issued to the investor) to: Cash Preservation c/o PFPC, P.O. Box
8916, Wilmington, Delaware 19899. The request must be signed by all shareholders
exactly as their names appear on the Fund's records. It is recommended that such
request be sent by registered or certified mail if share certificates accompany
the request.
Exchange by Telephone--Shareholders are automatically provided with this
option when opening an account, unless they indicate on the Application that
they do not wish to use this privilege. Shareholders holding share certificates
may not exchange shares by telephone 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 PFPC. This form is available from PFPC. Once this
election has been made, the shareholder may
16
<PAGE>
simply contact PFPC by telephone to request the exchange (800) 430-9618. 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. Neither PFPC nor the Fund will be liable for any loss, liability,
cost or expense for following the Fund's telephone transaction procedures
described 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) permitting exchanges only if the two account registrations are identical;
(5) 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; (6) 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 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.
Detailed Instructions Required. A request for an exchange of Shares must be
sufficiently detailed to enable PFPC to complete the exchange in accordance with
the shareholder's wishes. The request must name the Portfolio and account number
from which the exchange is to be made. It must also name the Portfolio to which
the exchange is to be made and the account number, if to an existing account.
The request must specify the amount of money or Shares to be exchanged. New
accounts will be established with the same registration and address, and with
the same options as the account from which the exchange is made--an Application
is not needed. If the registration or address of the new account is to be
different in any respect, the request must be in writing with all signatures
guaranteed by a commercial bank or trust company, or a member firm of a national
securities exchange.
Account Minimums. If the exchange is to a new account, the dollar value of
Shares acquired must equal or exceed the Portfolio's minimum for a new account;
if to an existing account, the dollar value must equal or exceed the Portfolio's
minimum for subsequent investments. If any amount remains in the Cash
Preservation Class from which the exchange is being made, such amount must not
drop below the minimum account value required by that Portfolio.
RETIREMENT PLANS--Cash Preservation 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 an Authorized Dealer. To determine whether the
benefits of an IRA are available and/or appropriate, a shareholder should
consult with a tax adviser.
Subsequent Investments
Once an account has been opened, additional investments may be made by
mail, bank wire, exchange, or the automatic investment program. The minimum
subsequent investment is $100 ($1,000 if payment is by bank wire).
BY MAIL--Payment may be made by check or a Federal Reserve Draft payable to
the order of "Cash Preservation." The check or draft must also specify the name
of the Portfolio in which you wish to invest. Mail your payment to Cash
Preservation c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. Federal
Reserve Drafts are available at national banks or any state bank which is a
member of the Federal Reserve System.
BY BANK WIRE--Follow steps A and B above given under "Initial
Investment--By Bank Wire."
17
<PAGE>
BY EXCHANGE--Follow the procedures given under "Initial Investment--By
Exchange" above.
BY AUTOMATIC INVESTING--Additional investments may be made automatically by
authorizing PFPC to withdraw funds from your bank account. Investors desiring to
participate in the automatic investing program should call PFPC at (800)
430-9618 to obtain the appropriate form.
Redemption of Shares
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. In the case of shareholders holding share
certificates, the certificates must accompany the redemption request.
BY MAIL--An investor may redeem any number of Shares by sending a written
request, together with any share certificates issued to the investor, to the
Fund's transfer agent, PFPC, P.O. Box 8916, Wilmington, Delaware 19899
Attention: Cash Preservation Portfolios. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. 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, each signature must be guaranteed. 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). You may call the Transfer
Agent at (800) 430-9618 to determine whether the entity that will guarantee the
signature is an eligible guarantor. Guarantees must be signed by an authorized
signatory of the bank, trust company or member firm and "Signature Guaranteed"
must appear with the signature.
BY FUND CHECK--An investor may request that the Fund provide redemption
checks drawn on a particular Cash Preservation Class. Shareholders holding share
certificates are not eligible for this check writing privilege because share
certificates must accompany all redemption requests. Checks will be sent only to
the registered owner(s) and only to the address of record. Investors may issue
checks made payable to the order of any person in the amount of $100 or more.
The redemption is not effective until the check is processed and cleared by the
transfer agent, and dividends are earned until the redemption is effected.
Because dividends accrue daily, a check should not be used to close an account
as a small balance is likely to result. There is no charge to the investor for
redemption by check. If a shareholder who has check writing privileges exchanges
funds from one Cash Preservation Class into another Cash Preservation Class, he
or she will automatically receive a checkbook for the new account (allow three
to four weeks for delivery). The Fund or PNCBank 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.
BY TELEPHONE--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. You may obtain a Telephone Authorization from PFPC or by calling
Account Services (800) 430-9618. Shareholders holding share certificates are not
eligible to redeem Shares by telephone because share certificates must accompany
all redemption requests. The proceeds will be mailed by check to your registered
address unless you have designated in your 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 $1,000. There is no maximum redemption 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. Neither PFPC nor the Fund will be liable for any loss, liability,
cost or expense for following the Fund's telephone transaction procedures or for
follow
18
<PAGE>
ing instructions communicated by telephone that it reasonably believes to be
genuine as described in this prospectus. See "Purchase and Redemption of Shares
- -- Exchange by Telephone."
Other Redemption Information
The Fund ordinarily will make payment for all Shares redeemed within seven
days after receipt by the Fund's transfer agent of a request in proper form.
However, Shares purchased by check will not be redeemed for a period 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 the Shares are redeemed, dividends on such
Shares will accrue and be payable, and an investor will be entitled to exercise
all other rights of beneficial ownership. An investor who purchased Shares by
Federal Funds wire must have delivered to the transfer agent a fully completed
and signed Application before a redemption request can be honored.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in a Cash Preservation Class involuntarily, on
thirty days' notice, if such account drops below $500 and during such 30-day
period the shareholder does not increase such account 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.
Additional Exchange Privilege
In addition to exchanges between Cash Preservation Classes, shareholders
may exchange Shares of a Cash Preservation Class for shares of any of the
non-money market classes of Common Stock of the RBB Family of classes of the
Fund (the "Participating Classes") by mail or by telephone. Shares of the
Participating Classes may be acquired by exchange at the next determined public
offering price, including sales charges, if any, applicable to such shares.
Shares of the Participating Classes to be acquired must be registered for sale
in the investor's state. In order to establish a systematic withdrawal plan for
the new account, an exchanging shareholder must file a specific written request.
The terms of this additional exchange privilege are generally the same as the
exchange privilege between Shares of the Cash Preservation Classes as described
above. See "Purchase and Redemption of Shares--Initial Investment--By Exchange."
However, this additional exchange privilege is only available by completing the
appropriate section of the Application. The prospectus for the Participating
Classes may be obtained from any Authorized Dealer or the Distributor. An
investor considering an exchange to one of the Participating Classes should
refer to such prospectus for information regarding such classes. An exchange of
Shares will be treated as a sale for Federal income tax purposes. See "Taxes."
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per Share of each of the Portfolios for the purpose of
pricing purchase and redemption orders is determined twice each day, once as of
12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on each weekday
with the exception of those holidays on which either the NYSE or the FRB is
closed. Currently, the NYSE, is closed on weekends and the customary national
business holidays of New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed). The FRBis 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. Each Portfolio's net asset
value per Share is calculated by adding the value of all securities and other
assets of the Portfolio, subtracting its liabilities and dividing the result by
the number of its outstanding Shares. The net asset value per Share of each
Portfolio is determined independently of any of the Fund's other investment
portfolios.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per Share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in
19
<PAGE>
the Statement of Additional Information under the heading "Valuation of Shares."
There can be no assurance that net asset value per Share will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
Board of Directors
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate nineteen separate investment portfolios. Each of
the Cash Preservation Classes represents interests in one of the following such
investment portfolios: the Money Market Portfolio and the Municipal Money Market
Portfolio.
Investment Adviser and Sub-Adviser
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware, 19809. PNC Bank serves as the sub-adviser for each of the Portfolios.
PNC Bank and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Philadelphia area since 1847.
PNC Bank and its subsidiaries currently manage over $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 Portfolios, PIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolios, and maintains
the Portfolios' financial accounts and records. PNC Bank, as sub-adviser,
provides research and credit analysis and provides PIMC with certain other
services. In entering into Portfolio transactions for a Portfolio with a broker,
PIMC may take into account the sale by such broker of shares of the Fund,
subject to the requirements of best execution.
For the services provided to and expenses assumed by it for the benefit of
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. For the services provided to and
expenses assumed by it for the benefit of the Municipal Money Market Portfolio,
PIMC is entitled to receive the following fees, computed daily and payable
monthly based on the Portfolio's average daily net assets: .35% of the first
$250 million; .30% of the next $250 million; and .25% of net assets in excess of
$500 million.
PIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fees paid by the Fund to PIMC with respect to a Portfolio (subject
to certain adjustments). Such sub-advisory fees have no effect on the advisory
fees payable by each 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. Any such arrangement would have no effect on
the advisory fees payable by each Portfolio to PIMC.
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For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .20% and .05% of the average net assets of the Money
Market Portfolio and the Municipal Money Market Portfolio, respectively. For
that same period, PIMC waived approximately .17% and .28% of the average net
assets of the Money Market Portfolio and the Municipal Money Market Portfolio.
Administrator
PFPC serves as the administrator for the Municipal Money Market Portfolio
and generally assists the Portfolio in all aspects of its administration and
operation, including matters relating to the maintenance of financing records
and accounting. PFPC is entitled to an administration fee, computed daily and
payable monthly at a rate of .10% of the average daily net assets of the
Municipal Money Market 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 Portfolios. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
Expenses
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. These expenses include, but are not limited
to, organizational costs, fees paid to the investment adviser, fees and expenses
of officers and directors who are not affiliated with the Portfolio's investment
adviser or Distributor, taxes, interest, legal fees, custodian fees, auditing
fees, brokerage fees and commissions, certain of the fees and expenses of
registering and qualifying the Portfolio and its shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information annually to existing
shareholders that are not attributable to a particular class of shares of the
Fund, the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund, fidelity bond and directors and officers liability insurance premiums, the
expense of using independent pricing services and other expenses which are not
expressly assumed by the Portfolio's investment adviser under its advisory
agreement with the Portfolio. Any general expenses of the Fund that are not
readily identifiable as belonging to a particular investment portfolio of the
Fund will be allocated among all investment portfolios of the Fund based upon
the relative net assets of the investment portfolios at the time such expenses
were accrued. In addition, distribution expenses, transfer agency expenses,
expenses of preparing, printing and distributing prospectuses, statements of
additional information, proxy statements, and reports to shareholders and
registration fees, identified as belonging to a particular class, are allocated
to such class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
21
<PAGE>
For the Fund's fiscal year ended August 31, 1996 the Fund's total expenses
were 12.08% of the average net assets with respect to the Cash Preservation
Class of the Money Market Portfolio (not taking into account waivers and
reimbursements of 11.13%) and were 19.20% of the average net assets with respect
to the Cash Preservation Class of the Municipal Money Market Portfolio (not
taking into account waivers and reimbursements of 18.22%).
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 for each of the Cash Preservation
Classes of the Fund pursuant to separate distribution contracts (collectively,
the "Distribution Contracts") with the Fund on behalf of each of the Cash
Preservation Classes.
The Board of Directors of the Fund approved and adopted the Distribution
Contracts and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant Cash
Preservation Class a distribution fee, which is accrued daily and paid monthly,
of up to .65% on an annualized basis of the average daily net assets of the
relevant Cash Preservation Class. The actual amount of such compensation under
the Plans is agreed upon by the Fund's Board of Directors and by the
Distributor. Under each of the Distribution Contracts, the Distributor has
agreed to accept compensation for its services thereunder and under the relevant
Plan in the amount of .40% on an annualized basis of the average daily net
assets of the relevant Cash Preservation Class in any year. Such compensation
may be increased, up to the amount permitted in the Plan, with the approval of
the Fund's Board of Directors. Pursuant to the conditions of an exemptive order
granted by the Securities and Exchange Commission (the "SEC"), the Distributor
has agreed to waive its fee with respect to a Cash Preservation Class on any day
to the extent necessary to assure that the fee required to be accrued by such
Class does not exceed the income of such Class on that day. In addition, the
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including to broker/dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of any
relevant Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Portfolios of the Fund as well
as for related direct mail, advertising expenses and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Cash Preservation Class the
fee agreed to under the relevant Distribution Contract. Neither of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor may incur in fulfilling its obligations under a Plan on behalf of
the relevant Cash Preservation Class. Thus, under each of the Plans, even if the
Distributor's 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 expenses are less than the fee it receives, the Distributor will
retain the full amount of the fee.
Each Plan has been approved by the shareholders of the relevant Cash
Preservation Class. Under the terms of Rule 12b-1, each will remain in effect
only if approved at least annually by the Fund's Board of Directors, including
those directors who are not "interested persons" of the Fund as that term is
defined in the 1940 Act and who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related thereto ("12b-1
Directors"). Each of the Plans may be terminated at any time by vote of a
majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Cash Preservation Class. The fee
set forth above will be paid by the Fund on behalf of the relevant Cash
Preservation Class to the Distributor unless and until the relevant Plan is
terminated or not renewed.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Cash Preservation Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of 4:00 p.m. Eastern Time. Net
short-term capital gains, if any, will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional Shares.
Neither of the Portfolios intends to make distributions that will be eligible
for the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of either 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 currently 31%, while
the maximum rate imposed on net capital gain of such taxpayers is 28%. Corporate
taxpayers are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio intends to pay substantially all of
its dividends as "exempt interest dividends." Investors in this Portfolio should
note, however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" in their Federal income tax returns and
that in two circumstances such amounts, while exempt from regular Federal income
tax, are subject to alternative minimum tax at a rate of 24% in the case of
individuals, trusts and estates, and 20% in the case of corporate taxpayers.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986, will generally constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum and environmental tax liability. Although it does not
currently intend to do so, the Municipal Money Market Portfolio may invest up to
100% of its net assets in such private activity bonds. Secondly, tax-exempt
interest and "exempt interest dividends" derived from all other Municipal
Obligations must be taken into account by corporate taxpayers in determining
their adjusted current earnings adjustment for Federal alternative minimum tax
purposes. Shareholders who are recipients of Social Security Act or Railroad
Retirement Act benefits should further note that tax-exempt interest and "exempt
interest dividends" derived from all types of Municipal Obligations will be
taken into account in determining the taxability of their benefit payments.
The Municipal Money Market Portfolio will determine annually the
percentages of its net investment income which are exempt from the regular
Federal income tax, which constitute an item of tax preference for purposes of
the Federal
23
<PAGE>
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
dung that year. These percentages may differ significantly from the actual
percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. Each Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
Federal excise tax.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment. See the Statement of Additional
Information.
An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of the Municipal Money Market Portfolio would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts since such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from such Portfolio's
dividends being tax-exempt but also such dividends would be taxable when
distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or both Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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 and 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 CASH PRESERVATION CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE CASH PRESERVATION 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
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<PAGE>
shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples of when the 1940 Act requires voting by investment portfolio or class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of 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.
The Fund will issue share certificates for any of the Cash Preservation
Shares only upon the written request of a shareholder sent to PFPC.
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 (800) 430-9618.
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<PAGE>
CASH PRESERVATION PORTFOLIOS
MONEY MARKET PORTFOLIO AND
MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of two classes (the "Cash
Preservation Shares") representing interests in two investment portfolios (the
"Portfolios") of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio and
the Municipal Money Market Portfolio. This Statement of Additional Information
is not a prospectus, and should be read only in conjunction with the Cash
Preservation 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 2
Investment Objectives and Policies ........ 2 7
Directors and Officers .................... 11 N/A
Investment Advisory, Distribution and
Servicing Arrangements ............ 14 20
Portfolio Transactions .................... 19 N/A
Purchase and Redemption Information ....... 20 14
Valuation of Shares ....................... 21 19
Taxes ..................................... 23 23
Additional Information Concerning
Fund Shares ....................... 28 24
Miscellaneous ............................. 30 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 two
classes of shares (the "Cash Preservation Classes") representing interests in
two of the investment portfolios (the "Portfolios") of the Fund: the Money
Market Portfolio and the Municipal Money Market Portfolio. The Cash Preservation
Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity
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of the Money Market Portfolio or the Municipal Money Market Portfolio and
whether a variable rate demand instrument has a remaining maturity of 397
calendar days or less, each instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. In determining whether an unrated variable rate demand
instrument is an eligible security, the Portfolio's investment adviser will
follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While a Portfolio has firm
commitments outstanding, such Portfolio will maintain in a segregated account
with the Firm'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 relevant Portfolio will set aside portfolio securities to
satisfy a purchase commitment and, in such a case, such Portfolio may be
required subsequently to place additional assets in the separate account in
order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When either the Money Market Portfolio or Municipal Money Market
Portfolio engages in when-issued transactions, it relies on the seller to
consummate the trade. Failure of the seller to do so may result in such
Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio and
Municipal Money Market Portfolio may enter into stand-by commitments with
respect to obligations issued by or on behalf of states, territories, and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Money Market Portfolio or
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
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<PAGE>
Each of the Money Market Portfolio and Municipal Money Market
Portfolio expects that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, either such Portfolio may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Money Market Portfolio
and Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of
the relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
Each of the Money Market Portfolio and Municipal Money Market
Portfolio intends to enter into stand-by commitments only with dealers, banks
and broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. Either such Portfolio's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Money Market Portfolio and Municipal Money Market
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where either such Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by such Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to
-4-
<PAGE>
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
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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
Portfolio's investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include (1) U.S. Government securities;
(2) securities that (a) are rated (at the time of purchase) by two more
nationally
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<PAGE>
recognized statistical rating organizations ("NRSROs") in the two highest
ratting categories for such securities (e.g., commercial paper rated "A-1" or
"A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's or (b) are rated (at
the time of purchase) by the only NRSRO rating the security in one of its two
highest rating categories for such securities; (3) short-term obligations and
long-term obligations that have remaining maturities of 397 calendar days or
less, provided in each instance that such obligations have no short-term rating
and are comparable in priority and security to a class of short-term obligations
of the issuer that has been rated in accordance with (2) (a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"(, provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, or (b) that are not unconditional, provided that the
demand feature satisfies (2), (3) or (4) above, and the demand instrument or
long-term obligations of the issuer satisfy (2) or (4) above for long-term debt
obligations. The Board of Directors will approve or ratify any purchases by the
Money Market and Government Obligations Money Market Portfolios of securities
that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. Neither Portfolio may invest more than
10% of its net assets in illiquid securities (including with respect to the
Money Market Portfolio, repurchase agreements which have a maturity of longer
than seven days), including securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. Securities that have legal or contractual restrictions on resale but
have a readily available market are not considered illiquid for purposes of this
limitation. Each Portfolio's investment adviser will monitor the liquidity of
such restricted securities under the supervision of the Board of Directors. With
respect to the Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary
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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 qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
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<PAGE>
INVESTMENT LIMITATIONS.
Neither Portfolio may:
(1) borrow money, except from banks for temporary purposes
(and with respect to the Money Market Portfolio only, except for reverse
repurchase agreements) and then in amounts not in excess of 10% of the value of
the Portfolio's total assets at the time of such borrowing, and only if after
such borrowing there is asset coverage of at least 300 percent for all
borrowings of the Portfolio; or mortgage, pledge or hypothecate any of its
assets except as may be necessary in connection with such borrowing and then,
with respect to the Money Market Portfolio, in amounts not in excess of 10% of
the value of a Portfolio's total assets at the time of the borrowing and, with
respect to the Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a Portfolio's total
assets at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to facilitate
management of the Portfolio's securities by enabling the Portfolio to meet
redemption requests where the liquidation of portfolio securities is deemed to
be disadvantageous or inconvenient);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result at the time of such
purchase more than 5% of a Portfolio's total assets would be invested in the
securities of such issuer, or more than 10% of the outstanding voting securities
of such issuer would be owned by the Portfolio, except that up to 25% of the
value of a Portfolio's assets may be invested without regard to this 5%
limitation;
(3) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio securities, a
Portfolio may be deemed an underwriter under Federal securities laws and except
to the extent that the purchase of Municipal Obligations directly from the
issuer thereof in accordance with a Portfolio's investment objective, policies
and limitations may be deemed to be an underwriting;
-8-
<PAGE>
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or combinations
thereof;
(6) purchase or sell real estate, provided that a Portfolio
may invest in securities secured by real estate or interests therein or issued
by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter into
repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation, acquisition or
reorganization of all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
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<PAGE>
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares 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 Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities of the
parents, and will divide utility companies according to their services. For
example, gas, gas transmission, electric and gas, electric and telephone will
each be considered a separate industry. The policy and practices stated in this
paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange 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 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
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<PAGE>
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.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or subject to
Puts from the same institution, except that the foregoing condition shall only
be applicable with respect to 75% of the Municipal Money Market Portfolio's
total assets. A "Put" means a right to sell a specified underlying instrument
within a specified period of time and at a specified exercise price that may be
sold, transferred or assigned only with the underlying instrument.
-------------------------
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
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<PAGE>
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:
Positions(s) held Principal Occupation(s)
Name, Address and Age with Fund During Past Five Years
- --------------------- ----------------- ------------------------
Arnold M. Reichman - 48* Director Since 1986, Managing
48* 466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since OCTOBER 1996, SENIOR
110 Wall Street VICE PRESIDENT OF
New York, NY 10005 FAHNESTOCK & CO., INC.
1985 TO 1996, Executive
Vice President of
Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc.
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, Inc.)
(shopping centers); and
Since 1975,
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<PAGE>
Positions(s) held Principal Occupation(s)
Name, Address and Age with Fund During Past Five Years
- --------------------- ----------------- ------------------------
Director and
Executive Vice President,
Cellucap Mfg. Co., Inc.
(Manufacturer of
disposable headwear).
Julian A. Brodsky - 63 Director Director, Vice Chairman,
Comcast Corporation 1969 to present, Comcast
1234 Market St. Corporation Director of
16th Floor Comcast Cablevision of
Philadelphia, PA 19107-3723 Philadelphia (cable
television and
communications) and
Nextel (Wireless
Communications).
Donald van Roden - 72 Director Self-employed businessman.
1200 Old Mill Lane From February 1980 to
Wyomissing, PA 19610 March 1987, Vice Chairman,
SmithKline Beckman
Corporation
(pharmaceuticals);
Director, AAA
Mid-Atlantic (auto
service); Director,
Keystone Insurance Co.
Edward J. Roach - 72 President and Certified Public
Suite 100 Treasurer Accountant; Vice Chairman
Bellevue Park Corporate of the Board of Fox Chase
Center Cancer Center; Trustee,
400 Bellevue Parkway Emeritus, Pennsylvania
Wilmington, DE 19809 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, the law firm of
1100 PNB Bank Bldg Drinker Biddle & Reath,
Philadelphia, PA 19107 Philadelphia,
Pennsylvania;
Director, Rocking Horse
Child Care Centers
of America, Inc.
- -----------------------
*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, and his position as President of the Fund.
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<PAGE>
**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, and 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"), the Municipal Money Market Portfolio's administrator and the
Fund's transfer and dividend disbursing agent, and Counsellors Securities Inc.
(the "Distributor"), the Fund's distributor, the
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<PAGE>
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 each of the Portfolios and also renders
administrative services to the Money Market Portfolio pursuant to separate
investment advisory agreements. The advisory agreement relating to the Money
Market Portfolio is dated August 16, 1988, and the advisory agreement relating
to the Municipal Money Market Portfolio is dated April 21, 1992. PNC Bank
renders sub-advisory services to each of the Portfolios pursuant to separate
Sub-Advisory Agreements, each 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, $190,687 IN
ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO. DURING THAT
SAME YEAR, PIMC WAIVED $3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO UNDER ITS ADVISORY CONTRACT WITH THE FUND. FOR THE YEAR
ENDED AUGUST 31, 1995, PIMC received (after waivers) $2,274,697 in advisory fees
with respect to the Money Market Portfolio and $67,752 in advisory fees with
respect to the Municipal Money Market Portfolio under its Advisory Contract with
the Fund. During the same year, PIMC waived $2,589,832 of advisory fees with
respect to the Money Market Portfolio and $1,041,321 of advisory fees with
respect to the Municipal 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 and $7,733 in advisory fees with respect to the
Municipal Money Market Portfolio under its Advisory Contract with the Fund.
During that same year, PIMC waived $2,255,986 of advisory fees with respect to
the Money Market Portfolio and $1,091,646 of advisory fees with respect to the
Municipal 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
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<PAGE>
state regulations. Currently, the most restrictive of such applicable limits is
2.5% of the first $30 million of average annual net assets, 2% of the next $70
million of average annual net assets and 1 1/2% of the remaining average annual
net assets. Certain expenses, such as brokerage commissions, taxes, interest and
extraordinary items, are excluded from this limitation. Whether such expense
limitations apply to the Fund as a whole or to each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional information and supplements thereto to existing shareholders, as
well as reports to shareholders and proxy material that are not attributable to
a class; (m) any extraordinary expenses; (n) fees, voluntary assessments and
other expenses incurred in connection with membership in investment company
organizations; (o) costs of mailing and tabulating proxies and costs of
shareholders' and directors' meetings; (p) costs of PIMC's use of independent
pricing services to value a portfolio's securities; and (q) the cost of
investment company literature and other publications provided by the Fund to its
directors and officers. Distribution expenses, transfer agency expenses,
expenses of preparation, printing and mailing of prospectuses statements of
additional information, proxy statements and reports to shareholders, and
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<PAGE>
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 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 approved with respect to the Money Market Portfolio by the shareholders of
the Portfolio at a special meeting held December 22, 1989, as adjourned. The
Investment Advisory Agreement was approved with respect to the Municipal Money
Market Portfolio by shareholders at a special meeting held June 10, 1992, as
adjourned. The Sub-Advisory Agreement was approved with respect to the Municipal
Money Market Portfolio by shareholders 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 relevant Portfolio, at any time without penalty, on 60 days'
written notice to PIMC or PNC Bank. Each of the Advisory Contracts may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
assignment thereof.
ADMINISTRATION AGREEMENT. PPFC serves as the administrator to
the Municipal Money Market Portfolio pursuant to an Administration and
Accounting Services Agreement dated April 21, 1992 (the "Administration
Agreement"). PPFC has agreed to furnish to the Fund on behalf of the Municipal
Money Market Portfolio statistical and research data, clerical, accounting, and
bookkeeping services, and certain other services required by the Fund. PPFC has
also agreed to prepare and file various reports with the appropriate regulatory
agencies, and prepare materials required by the SEC or any state securities
commission having jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or the Portfolio in connection with the performance of the agreement,
except a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreement, PFPC receives
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<PAGE>
a fee of .10% of the average daily net assets of the Municipal Money Market
Portfolio.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Cash Preservation Classes pursuant to a
Transfer Agency Agreement dated August 16, 1988 (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems shares of each of the Cash
Preservation Classes, (b) addresses and mails all communications by each
Portfolio to record owners of shares of each such Class, including reports to
shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Cash Preservation Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio, for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and receives reimbursement
of its out-of-pocket expenses.
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PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Cash Preservation
Classes (collectively, the "Distribution Contracts") and separate Plans of
Distribution for each of the Cash Preservation Classes (collectively, the
"Plans"), all of which were adopted by the Fund in the manner prescribed by Rule
12b-1 under the 1940 Act, the Distributor will use its best efforts to
distribute shares of each of the Cash Preservation Classes. As compensation for
its distribution services, the Distributor will receive, pursuant to the terms
of the Distribution Contracts, a distribution fee, to be calculated daily and
paid monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
Authorized Dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans as amended relating to the Cash Preservation
Classes was most recently approved for continuation, on July 26, 1995 by the
Fund's Board of Directors, including the directors who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Plans or any agreements related to the Plans ("12b-1
Directors"). Each of the Plans was approved by the shareholders of each Cash
Preservation Class at a special meeting held December 22, 1989, as adjourned.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's
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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 Cash Preservation 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 Cash Preservation 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 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 Plans for the Cash
Preservation Class of the Money Market Portfolio and the Cash Preservation Class
of the Municipal Money Market Portfolio in the aggregate amounts of $858 and
$531, respectively. All such amounts were retained by the Distributor and used
to pay certain mailing expenses, printing and distribution of prospectuses and
sales literature, postage, legal fees, travel and entertainment, sales and
marketing and administrative expenses. The Fund believes that such Plans may
benefit the Fund by increasing sales of Shares. Mr. Reichman, a Director of the
Fund, has an indirect financial interest in the operation of the Plans by virtue
of his position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plans 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
Each of the Portfolios intends to purchase only 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 both Portfolios 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 both Portfolios intend to purchase only securities with
remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
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Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. Neither of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light differing conditions. However, the same investment decision
may occasionally be made for two or more of such accounts. In such cases,
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated as to amount according to a formula deemed equitable
to each such account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Portfolio is
concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these
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procedures, which will be reviewed by the Fund's directors annually, require
that the commission paid in connection with such a purchase be reasonable and
fair, that the purchase be at not more than the public offering price prior to
the end of the first business day after the date of the public offer, and that
PIMC and PNC Bank not participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
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VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of both of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern time) and as of 4:00 p.m.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE 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
both of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
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Both of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Both of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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 ended August 31, 1996
for the Cash Preservation Classes of each of the Money Market Portfolio and the
Municipal Money Market Portfolio was 4.53% and 2.67%, respectively. The
effective yield for the same period for the same Classes was 4.63% and ^
2.71%, respectively. The tax equivalent yield for the same period for the Cash
Preservation Class of the Municipal Money Market Portfolio was 3.71% (assuming
an income tax rate of 28%).
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Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a widely-recognized independent
service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
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shareholders, and the discussion here and in the Fund's Prospectus for the Cash
Preservation Shares is not intended as a substitute for careful tax planning.
Investors are urged to consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures, or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of
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the Short-Short Gain Test. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, Government securities, securities of
other regulated investment companies, and securities of other issuers (as to
which a Portfolio has not invested more than 5% of the value of its total assets
in securities of such issuer and as to which a Portfolio does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of each Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio 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 it to fail to satisfy the Asset
Diversification Requirement.
The Municipal Money Market Portfolio is designed to provide
investors with current tax-exempt interest income. In order for the Municipal
Money Market Portfolio to pay exempt interest dividends during any taxable year,
at the close of each fiscal quarter at least 50% of the value of such Portfolio
must consist of exempt interest obligations. Exempt interest dividends
distributed to shareholders by this Portfolio are not included in the
shareholder's gross income for regular Federal income tax purposes.
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
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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 Municipal Money Market Portfolio may not be an appropriate
investment for entities which are "substantial users" of facilities financed by
private activity bonds or "related persons" thereof. "Substantial user" is
defined under U.S. Treasury Regulations to include a non-exempt person who
regularly uses a part of such facilities in his trade or business and (a) whose
gross revenues derived with respect to the facilities financed by the issuance
of bonds are more than 5% of the total revenues derived by all users of such
facilities, (b) who occupies more than 5% of the entire usable area of such
facilities, or (c) for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders.
Each of the Portfolios 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.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio is not deductible for
income tax purposes if (as expected) the Municipal Money Market Portfolio
distributes exempt interest dividends during the shareholder's taxable year.
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Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although the Municipal Money Market
Portfolio generally does not expect to receive net investment income other than
Tax-Exempt Interest and AMT Interest, up to 20% of the net assets of such
Portfolio may be invested in Municipal Obligations that do not bear Tax-Exempt
Interest or AMT Interest, and any taxable income recognized by such Portfolio
will be distributed and taxed to its shareholders.
While neither of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. Neither of the Portfolios will have
tax liability with respect to such gains and the distributions will be taxable
to Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or 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 each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions 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 rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal rate of 34% (an effective marginal rate of 39% applies in the
case of corporations having taxable income between $100,000 and $335,000).
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If for any taxable year either Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on municipal obligations in the case of
the Municipal Money Market Portfolio) to the extent of such Portfolio's current
and accumulated earning and profits. Such distributions will be eligible for the
dividends received deduction in the case of corporate shareholders.
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 one-year period ending
on October 31 of such calendar year. The balance of such income must be
distributed during the next calendar year. For the foregoing purposes, a company
is treated as having distributed any amount on which it is subject to income tax
for any taxable year ending in such calendar year. Because each Portfolio
intends to distribute all of its taxable income currently, neither of the
Portfolios anticipates incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
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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, 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 COMMON STOCK, 100 million shares are classified as
Class COMMON STOCK, 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
-31-
<PAGE>
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 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 G Common
Stock and Class H Common Stock constitute the Cash Preservation Family Classes.
Under the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
-32-
<PAGE>
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
Janney Montgomery Scott Money Funds Family, the Beta Family, THE N/I FAMILY, THE
BOSTON PARTNERS 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 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 INTERESTS IN ONE NON-MONEY 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
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
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<PAGE>
policy would be effectively acted upon with respect to a portfolio only if
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent public accountants, the approval of principal
underwriting contracts and the election of directors are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad & 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.
-34-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and 12.7
(Class E) Robert J. Garvey
2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 29.6
& Howard Levine
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 6.1
DORIS DIEDERICH
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed Assets
Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master 10.2
(Class U) Retirement Trust
303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
2383 MICHELSON DRIVE
IRVINE, CA 92730
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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. 13.3
RETIREMENT PLAN
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BANK OF NEW YORK 9.6
TRST FENWAY PARTNERS MASTER TRUST
ONE WALL STREET, 12TH FLOOR
NEW YORK, NY 10286
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
MATTHEW M. SLOVES AND DIANE DECKER SLOVES 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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 18.7
PORTFOLIO 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
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
N/I GROWTH AND VALUE FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market Janney Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
JANNEY Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government Janney Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT OBLIGATIONS Philadelphia, PA 19103-1675
MONEY)
JANNEY Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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 common stock of the Fund.
LITIGATION. There is currently no material litigation affecting the Fund.
-42-
<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 Services, 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) and 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.
A-1
<PAGE>
The rating SP-1 is the highest rating assigned by Standard &
Poor's to municipal notes and indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of
the best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of
high quality with margins of protection ample although not as large as in the
preceding group.
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
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
11
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
12
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
14
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
------------ ------------
Investment Income
Interest ................................. $118,092,977 $15,900,230
------------ -----------
Expenses
Investment advisory fees ................. 7,702,090 1,409,660
Administration fees ...................... -- 4,282,090
Distribution fees ........................ 9,304,376 2,427,986
Service organization fees ................ 471,499 --
Directors' fees .......................... 38,473 7,715
Custodian fees ........................... 345,973 88,191
Transfer agent fees ...................... 3,044,149 291,739
Legal fees ............................... 77,139 17,721
Audit fees ............................... 61,049 12,514
Registration fees ........................ 434,000 192,999
Insurance expense ........................ 43,932 9,056
Printing fees ............................ 426,220 72,100
Miscellaneous ............................ 1,884 387
------------ -----------
21,950,784 4,958,277
Less fees waived ......................... (3,543,632) (1,236,642)
Less expense reimbursement by advisor .... (342,158) (17,576)
------------ -----------
Total expenses ...................... 18,064,994 3,704,059
------------ -----------
Net investment income .................... 100,027,983 12,196,171
------------ -----------
Realized loss on investments ............. (12,987) (674)
------------ -----------
Net increase in net assets resulting
from operations ........................ $100,014,996 $12,195,497
============ ===========
See Accompanying Notes to Financial Statements.
15
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
----------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 100,027,983 $ 64,913,329 $ 12,196,171 $ 9,691,756
Net gain (loss) on investments (12,987) (18,463) (674) 7,009
-------------- -------------- ------------ ------------
Net increase in net assets resulting
from operations 100,014,996 64,894,866 12,195,497 9,698,765
-------------- -------------- ------------ ------------
Distributions to shareholders:
Dividends to shareholders
from net investment income:
Bedford shares (49,874,649) (38,765,552) (5,960,711) (5,717,451)
Bradford Shares -- -- (3,611,114) (3,266,535)
Cash Preservation shares (10,092) (11,336) (3,746) (5,648)
Janney Montgomery Scott shares (24,434,566) (4,784,092) (2,620,457) (701,975)
RBB shares (2,630) (2,530) (143) (147)
Sansom Street shares (25,706,046) (21,349,819) -- --
-------------- -------------- ------------ ------------
Total distributions to shareholders (100,027,983) (64,913,329) (12,196,171) (9,691,756)
-------------- -------------- ------------ ------------
Net capital share transactions 374,464,737 736,630,198 (1,864,843) 140,043,103
-------------- -------------- ------------ ------------
Total increase in net assets 374,451,750 736,611,735 (1,865,517) 140,050,112
Net Assets:
Beginning of year 1,821,371,688 1,084,759,953 422,753,863 282,703,751
-------------- -------------- ------------ ------------
End of year $2,195,823,438 $1,821,371,688 $420,888,346 $422,753,863
============== ============== ============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
16
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income............ 0.0471 0.0487 0.0278 0.0243 0.0375
Net gains on securities
(both realized
and unrealized)................. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment
operations................... 0.0471 0.0487 0.0278 0.0243 0.0382
-------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income).............. (0.0471) (0.0487) (0.0278) (0.0243) (0.0375)
Distributions (from
capital gains).................. -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions .......... (0.0471) (0.0487) (0.0278) (0.0243) (0.0382)
-------- -------- -------- -------- --------
Net asset value, end of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return....................... 4.81% 4.98% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ... $ 202 $ 236 $ 231 $ 1,229 $ 1,233
Ratios of expenses to
average net assets.............. .95%(a) .95%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets .......... 4.71% 4.87% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income............ 0.0274 0.0281 0.0174 0.0174 0.0266
Net gains on securities
(both realized
and unrealized)................. -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations................... 0.0274 0.0281 0.0174 0.0174 0.0266
-------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income).............. (0.0274) (0.0281) (0.0174) (0.0174) (0.0266)
Distributions (from
capital gains).................. -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......... (0.0274) (0.0281) (0.0174) (0.0174) (0.0266)
-------- -------- -------- -------- --------
Net asset value, end of year ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return....................... 2.78% 2.84% 1.75% 1.75% 2.69%
Ratios /Supplemental Data
Net assets, end of year (000) ... $ 116 $ 161 $ 201 $ 157 $ 214
Ratios of expenses to
average net assets.............. .98%(a) .98%(a) .98%(a) .98%(a) .98%(a)
Ratios of net investment income
to average net assets .......... 2.74% 2.81% 1.74% 1.74% 2.66%
<FN>
(a) Without the waiver of advisory and transfer agent 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 12.08%,
9.34%, 2.52%, 2.25% and 2.30% for the years ended August 31, 1996, 1995,
1994, 1993 and 1992, respectively. For the Municipal Money Market
Portfolio, the ratios of expenses to average net assets would have been
19.20%, 10.80%, 11.52%, 8.95% and 5.91% for the years ended August 31,
1996, 1995, 1994, 1993 and 1992, respectively.
(b) Financial Highlights relate solely to the Cash Preservation Class of shares
within each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family, and the Bradford Family.
The Cash Preservation Family represents interests in two portfolios, which are
covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
will be distributed at least annually. Income distributions and capital
gain distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
18
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly owned subsidiary of PNC Asset Management Group,
Inc., which is in turn a wholly owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment advisor for the two portfolios
described herein. PNC Bank serves as the sub-advisor for the Money Market and
Municipal Money Market Portfolios.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on each of the two portfolios' average
daily net assets:
PORTFOLIO ANNUAL RATE
---------------------- ---------------------------------------------
Money Market Portfolio .45% of first $250 million of net assets;
.40% of next $250 million of net assets;
.35% of net assets in excess of 500 million.
Municipal Money Market .35% of first $250 million of net assets;
Portfolio .30% of next $250 million of net assets;
.25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for each of
the two investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- -------------- ----------
<S> <C> <C> <C>
Money Market Portfolio $7,702,090 $(3,527,715) $4,174,375
Municipal Money Market Portfolio 1,409,660 (1,218,973) 190,687
</TABLE>
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the two
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- -------------- ---------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total Money Market Portfolio $3,044,149 $(15,917) $3,028,232
========== ======== ==========
</TABLE>
19
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- -------------- ---------------
<S> <C> <C> <C>
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
---------- -------- ----------
Total Municipal Money Market Portfolio $ 291,739 $(17,669) $ 274,070
========== ======== ==========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
Portfolio. The administration fee is computed daily and payable monthly at an
annual rate of .10% of each Portfolio's average daily net assets. For the year
ended August 31, 1996, the administration fee for the Municipal Money Market
Portfolio was as follows:
ADMINISTRATION
FEE
--------------
Municipal Money Market Portfolio $428,209
The Fund, on behalf of each class of shares within the two investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott, and RBB Classes and up to .20% on an
annualized basis for the Sansom Street Class.
For the year ended August 31, 1996, distribution fees for each class within
the two investment portfolios were as follows:
DISTRIBUTION
FEE
------------
Money Market Portfolio
Bedford Class $ 5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
-----------
Total Money Market Portfolio $ 9,304,376
===========
Municipal Money Market Portfolio
Bedford Class $ 1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
-----------
Total Municipal Money Market Portfolio $ 2,427,986
===========
20
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------------- ----------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
-------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $3,797,592,288 $ 2,966,911,277 $ 1,022,457,772 $ 1,104,088,188
Bradford Class -- -- 479,401,891 474,166,249
Cash Preservation Class 122,344 84,527 171,907 175,548
Janney Montgomery Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881
RBB Class 584,206 31,504 69,480 5,004
Sansom Street Class 2,191,596,362 1,864,628,110 -- --
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408
Bradford Class -- -- 3,506,714 3,126,860
Cash Preservation Class 10,084 11,226 3,515 5,478
Janney Montgomery Scott Class 24,077,173 4,534,944 2,602,869 662,565
RBB Class 2,625 2,500 143 146
Sansom Street Class 18,389,361 16,689,941 -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142)
Bradford Class -- -- (464,445,579) (466,448,018)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391)
RBB Class (580,821) (23,917) (69,419) (5,072)
Sansom Street Class (2,127,237,313) (1,813,444,951) -- --
-------------- --------------- --------------- ----------------
Net increase (decrease) $ 374,464,737 $ 736,630,198 $ (1,864,843) $ 140,043,103
============== =============== =============== ================
Cash Preservation Shares authorized 500,000,000 500,000,000 500,000,000 500,000,000
============== =============== =============== ================
</TABLE>
21
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
MUNICIPAL
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
-------------- ------------
Capital paid-in:
Bedford Class $1,109,351,734 $202,009,609
Bradford Class -- 129,398,582
Cash Preservation Class 202,360 115,765
Janney Montgomery Scott Class 561,873,247 89,426,172
RBB Class 61,412 5,143
Sansom Street Class 524,367,399 --
Other Classes 800 800
Accumulated net realized gain (loss)
on investments
Bedford Class (17,400) (69,803)
Bradford Class -- 339
Cash Preservation Class (3) 5
Janney Montgomery Scott Class (7,821) 1,734
RBB Class (1) --
Sansom Street Class (8,289) --
-------------- ------------
$2,195,823,438 $420,888,346
============== ============
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $33,513 in the Money Market Portfolio of which $2,062
expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004; and $67,725
in the Municipal Money Market Portfolio of which $55,760 expires in 1999, $444
expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002, and $674
expires in 2004.
22
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Money Market Portfolio: Bedford, Janney Montgomery Scott, RBB
and Sansom Street. The Fund currently offers four other classes of shares
representing interests in the Municipal Money Market Portfolio: Bedford,
Bradford, Janney Montgomery Scott and RBB. Each class is marketed to different
types of investors. Financial Highlights of the RBB class is not presented in
this report due to its immateriality. Such information is available in the
annual report of the RBB family. The financial highlights of certain of the
other classes are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations..................... 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)........................... (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital gains) -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions ............ (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return......................... 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ..... $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets........................ .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets ............ 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.............. 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations..................... 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)........................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital gains) -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............ (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return......................... 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ..... $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets........................ .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets ............ 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
23
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- ---------
Income from investment operations:
Net investment income ................... 0.0288 0.0297 0.0195 0.0195 0.0154
------- -------- -------- -------- ---------
Total from investment operations ........... 0.0288 0.0297 0.0195 0.0195 0.0154
------- -------- -------- -------- ---------
Less distributions
Dividends (from net investment income) .. (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
------- -------- -------- -------- ---------
Total distributions ........................ (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
------- -------- -------- -------- ---------
Net asset value, end of period ............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== =========
Total Return ............................... 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period ............... $129,399 $110,936 $100,089 $ 76,975 $ 69,586
Ratios of expenses to average net assets .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets .................... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
24
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
--------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ----------- -------- -----------
Income from investment operations:
Net investment income .............................. 0.0465 0.0112 0.0278 0.0063
-------- ----------- -------- -----------
Total from investment operations ................ 0.0465 0.0112 0.0278 0.0063
-------- ----------- -------- -----------
Less distributions
Dividends (from net investment income) ............. (0.0465) (0.0112) (0.0278) (0.0063)
-------- ----------- -------- -----------
Total distributions ............................. (0.0465) (0.0112) (0.0278) (0.0063)
-------- ----------- -------- -----------
Net asset value, end of period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== =========== ======== ===========
Total Return .......................................... 4.76% 5.30%(b) 2.81% 2.87%(b)
Ratios /Supplemental Data
Net assets, end of period (000) .................... $561,865 $ 443,645 $ 89,428 $ 113,226
Ratios of expenses to average net assets ........... 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets ............................... 4.65% 5.04%(b) 2.78% 2.83%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratio of expenses to average net assets for
the Money Market Portfolio would have been 1.23% for the year ended August
31, 1996 and 1.23% annualized. For the Municipal Money Market Portfolio,
the ratio of expenses to average net assets would have been 1.23% for the
year ended August 31, 1996 and 1.30% annualized for the period ended August
31, 1995.
(b) Annualized.
</FN>
</TABLE>
25
<PAGE>
CASH PRESERVATION FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income.................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment operations...... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income)... (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains)....... -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions................... (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year.................. $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to
average net assets..................... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
26
<PAGE>
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.
- ---------------------------------------------------
TABLE OF CONTENTS
PAGE
Introduction ................................ 2
Financial Highlights ........................ 4
Investment Objectives and Policies .......... 8
Purchase and Redemption of Shares ........... 17
Distribution of Shares ...................... 21
Shareholder Servicing ....................... 22
Management .................................. 22
Dividends and Distributions ................. 24
Taxes ....................................... 25
Description of Shares ....................... 26
Other Information ........................... 27
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE SANSOM STREET FAMILY
of
The RBB Fund, Inc.
The Sansom Street Family consists of three classes of common stock of The
RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Sansom Street Shares" or "Shares")
offered by this Prospectus represent interests in a taxable money market
portfolio, a tax-free money market portfolio and a U.S. Government obligations
money market portfolio (collectively, the "Portfolios"). The investment
objectives of each investment portfolio described in this Prospectus are as
follows:
Money Market Portfolio--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
Municipal Money Market Portfolio--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities. During periods
of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which
is exempt from the regular Federal income tax but which may constitute an
item of tax preference for purposes of the Federal alternative minimum tax.
Government Obligations Money Market Portfolio--to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by PNC Bank, National Association or any other bank and Shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. Investments in Shares of the Fund involve
investment risks, including the possible loss of principal. There can be no
assurance that the Portfolios will be able to maintain a stable net asset value
of $1.00 per share.
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 Portfolios and
custodian for the Fund and PFPC Inc. serves as the administrator of the
Municipal Money Market Portfolio and as transfer and dividend disbursing agent
for the Fund.
Sansom Street Shares are sold by the Fund's distributor to customers
maintaining accounts with banks affiliated with PNC Bank Corp. (the "Banks").
Sansom Street Shares will be sold to customers, including individuals, trusts,
partnerships and corporations, who maintain accounts (such as custody, trust or
escrow accounts) with the Banks, and who have authorized the Banks to invest in
the Fund. Shares are sold and redeemed without any purchase or redemption charge
imposed by the Fund, although the Banks may receive compensation from the Fund
and charge their customer accounts for services provided in connection with the
purchase or redemption of shares. See "Shareholder Servicing." Sansom Street
Shares are also sold through broker/dealers that have entered into a dealer
agreement with the Fund's Distributor.
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 free of charge by calling the Fund's distributor
at (800) 888-9723.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the three classes of the Fund's shares
(collectively, the "Sansom Street Classes") offered by this Prospectus
represents interests in one of the following investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio and the Government
Obligations 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. 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 which 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 Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective the Municipal Money Market Portfolio invests substantially all of
its assets in a diversified portfolio of short-term Municipal Obligations which
meet certain ratings criteria and which present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular Federal income tax but which may constitute an item of
tax preference for purposes of the Federal alternative minimum tax.
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Government Obligations Money Market Portfolio invests exclusively in short-term
U.S. Treasury bills, notes and other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, and enters into repurchase
agreements relating to such obligations.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios 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 Portfolios and as custodian to the Fund, and PFPC Inc. ("PFPC") serves as
transfer and dividend disbursing agent to the Fund. Counsellors Securities Inc.
(the "Distributor") acts as distributor of the Fund's shares.
An investment in any of the Sansom Street Classes is subject to certain
risks, as set forth in detail under "Investment Objectives and Policies." The
Fund was created in 1988 and its investment portfolios commenced operations on
or after September 30, 1988. Some or all of the Portfolios, 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 detailed information of how to purchase or redeem Sansom Street Shares,
please refer to the section of this Prospectus entitled "Purchase and Redemption
of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
Fee Table
Annual Fund Operating Expenses (Sansom Street Classes)
After Expense Reimbursements and Waivers(3) Government
Municipal Obligations
Money Market Money Market Money Market
Portfolio Portfolio Portfolio
------------ ------------ ------------
<S> <C> <C> <C>
Management fees (after waivers)(1) .20% .05% .30%
12b-1 fees (after waivers)(1) .06 .05 .05
Other Expenses (after reimbursements)(2) .22 .29 .24
---- ---- ----
Total Fund Operating Expenses (Sansom Street Classes)
(after waivers and reimbursements) .48% .39% .59%
---- ---- ----
---- ---- ----
</TABLE>
(1) Management fees and 12b-1 fees are each based on average daily net assets
and are calculated daily and paid monthly.
(2) Includes for such Class a .10% shareholder servicing fee calculated based
upon the assets in the Class attributable to bank clients.
(3) Before Expense Reimbursements and Waivers for the Money Market Portfolio,
MunicipalMoney Market Portfolio and Government Obligations MoneyMarket
Portfolio, Management fees would be .37%, .33% and .42%, respectively;
12b-1 fees would be .06%, .05% and .05%, respectively; Other Expenses would
be .22% for the Money Market Portfolio and Total Fund Operating Expenses
would be .65% for the Money Market Portfolio. Other Expenses and Total Fund
Operating Expenses for the Sansom Street Class of the MunicipalMoney Market
Portfolio and the Government Obligations Money Market Portfolio are not
reported as no Shares of each such class had been sold to the public during
the Fiscal Year ended August 31, 1996.
<TABLE>
<CAPTION>
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:
1 Year 3 Years 5 Years 10 Years
------ ------ ------ ------
<S> <C> <C> <C> <C>
Money Market* $5 $15 $27 $60
Municipal Money Market* $4 $13 $22 $49
Government Obligations Money Market* $6 $19 $33 $74
</TABLE>
* Other classes of these Portfolios 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
(Sansom Street Classes) 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 Sansom Street Classes 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," "Distribution of Shares" and "Shareholder Servicing" below.)
Expense figures are based on actual costs and fees charged to each class. The
Fee Table reflects a voluntary waiver of Management fees for each Portfolio.
However, there can be no assurance that any future waivers of Management fees
will not vary from the figure reflected in the Fee Table. In addition, the
investment adviser is currently voluntarily assuming additional expenses of one
the Portfolios. There can be no assurance that the investment adviser will
continue to assume such expenses. Assumption of additional expenses will have
the effect of lowering a Portfolio's overall expense ratio and increasing its
yield to investors.
3
<PAGE>
From time to time a Portfolio advertises its "yield" and "effective yield."
BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers to the income
generated by an investment in a Portfolio over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. The Municipal Money Market
Portfolio's "tax-equivalent yield" may also be quoted from time to time, which
shows the level of taxable yield needed to produce an after-tax equivalent to
such Portfolio's tax-free yield. This is done by increasing such Portfolio's
yield (calculated as above) by the amount necessary to reflect the payment of
Federal income tax at a stated tax rate.
The yield of any investment is generally a function of portfolio quality
and maturity, type of investment, operating expenses and market conditions. The
yield on shares of each of the Sansom Street Classes will fluctuate and is not
necessarily representative of future results. Any fees charged by the Banks or
broker-dealers directly to their customers in connection with investments in a
Portfolio are not reflected in the yields on a Portfolio's shares, and such
fees, if charged, will reduce the actual return received by customers on their
investments. The yield on Shares of Sansom Street Classes may differ from yields
on shares of other classes of the Fund that also represent interests in the same
Portfolio depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Sansom Street Classes for the periods indicated. The financial
data included in this table for each of the periods ended August 31, 1992
through August 31, 1996 are a part of the Fund's financial statements for each
of the Portfolios 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 each such Portfolio for the periods ended August 31, 1989,
1990 and 1991 are a part of previous financial statements audited by Coopers &
Lybrand L.L.P. No financial data for the periods ended August 31, 1994 and
August 31, 1995 are included for the Sansom Street Class of Municipal Money
Market Portfolio as no shares of such Class had been sold to the public during
these periods and for the Sansom Street Class of the Government Obligations
Money Market as such Class ceased operations on December 4, 1991. The financial
data included in this table should be read in conjunction with the financial
statements and related notes included in the Statement of Additional
Information.
4
<PAGE>
Sansom Street Classes
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)
<TABLE>
<CAPTION>
Municipal Money Market Portfolio
-------------------------------------------------------------------------------------------------------
SEPTEMBER 30,1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0518 0.0543 0.0334 0.0304 0.0435 0.0684 0.0810 0.0818
Net gains on securities
(both realized
and unrealized) -- -- -- -- 0.0007 -- -- --
------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations 0.0518 0.0543 0.0334 0.0304 0.0442 0.0684 0.0810 0.0818
-------- -------- -------- -------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income) (0.0518) (0.0543) (0.0334) (0.0304) (0.0435) (0.0684) (0.0810) (0.0818)
Distributions (from
capital gains) -- -- -- -- (.0007) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions (0.0518) (0.0543) (0.0334) (0.0304) (0.0442) (0.0684) (0.0810) (0.0818)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------- ------- -------
-------- -------- -------- -------- -------- -------- ------- -------
Total Return 5.30% 5.57% 3.39% 3.08% 4.51% 7.06% 8.40% 9.25%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) $524,359 $441,614 $373,745 $190,794 $228,079 $138,418 $106,743 $79,656
Ratios of expenses
to average net assets .48%(a) .39%(a) .39%(a) .34%(a) .35%(a) .37%(a) .47%(a) .50%(a)(b)
Ratios of net investment
income to average
net assets 5.18% 5.43% 3.34% 3.04% 4.35% 6.84% 8.10% 9.04%(b)
</TABLE>
(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 .65%, .59%, .60%, .60%,
.61%, .61% and .73% for the years ended August 31, 1996, 1995, 1994, 1993,
1992, 1991, and 1990, respectively, and .83% annualized for the period
ended August 31, 1989.
(b) Annualized
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the portfolio.
5
<PAGE>
Sansom Street Classes
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)(d)
<TABLE>
<CAPTION>
Municipal Money Market Portfolio
-------------------------------------------------------
SEPTEMBER 30,1988
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1993 1992 1991 1990 1989
--------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- --------
Income from investment operations:
Net investment income 0.0233 0.0325 0.0471 0.0559 0.0537
Net gains on securities (both realized
and unrealized) -- -- -- -- --
-------- ------- -------- ------- --------
Total from investment operations 0.0233 0.0325 0.0471 0.0559 0.0537
-------- ------- --------- ------- --------
Less distributions
Dividends (from net investment income)(0.0233) (0.0325) (0.0471) (0.0559) (0.0537)
Distributions (from capital gains) -- -- -- -- --
------- -------- ------- --------- --------
Total distributions (0.0233) (0.0325) (0.0471) (0.0559) (0.0537)
-------- -------- --------- --------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- -------- -------
-------- -------- ------- --------- -------
Total Return 2.35% 3.30% 4.81% 5.74% 5.99%(b)
Ratios/Supplemental Data
Net assets, end of period $ 928 $3,025,781 $15,289,016 $24,781,689 $21,470,715
Ratios of expenses to average
net assets .39%(a) .39%(a) .34%(a) .38%(a) .50%(a)(b)
Ratios of net investment inccome
to average net assets 2.33% 3.25% 4.71% 5.59% 5.93%
</TABLE>
(a) Without the waiver of advisory, administration, and transfer agency fees
and without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the Municipal Money Market Portfolio is
not reported for the periods ended August 31, 1995 and 1994 and would have
been 3.02%, .87%, .73% and .77% for the years ended August 31, 1993, 1992,
1991, and 1990, respectively, and .95% annualized for the
period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the portfolio. (d) No Shares of this class had been sold to the
public during the periods ended August 31, 1996, 1995 and 1994.
6
<PAGE>
Sansom Street Classes
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
<TABLE>
<CAPTION>
Financial Highlights (c)
(For a Share Outstanding Throughout each Period)
Government Obligations Money Market Portfolio
-----------------------------------------------------------------------------
For the Period
October 18, 1988
For the For the For the (Commencement of
Period Ended Year Ended Year Ended Operations) to
December. 4, 1991(d) August 31, 1991 August 31, 1990 August 31, 1989
---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations:
Net investment income 0.0153 0.0699 0.0843 0.0816
Net gains on securities (both realized and unrealized) -- -- -- --
-------- -------- -------- --------
Total from investment operations 0.0153 0.0699 0.0843 0.0816
-------- -------- -------- --------
Less Distributions
Dividends (from net investment income) (0.0153) (0.0699) (0.0843) (0.0816)
Distributions (from capital gains) -- -- -- --
-------- -------- -------- --------
Total distributions (0.0153) (0.0699) (0.0843) (0.0816)
-------- -------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1 .00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
Total Return 6.02%(b) 7.23% 8. 79% 9.31%(b)
Ratios/Supplemental Data
Net assets, end of period -- $ 125 $ 125 $ 125
Ratios of expenses to average net assets --%(a) --%(a) --%(a) --%(a)
Ratios of net investment income to average net assets 5.85%(b) 6.99% 8.43% 8.91%(b)
</TABLE>
(a) Without the waiver of advisory, distribution and transfer agency fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the Government Obligations Money Market
Portfolio is not reported for the periods ended December 4, 1991, August
31, 1991, 1990 and 1989 as no shares of the Sansom Street Class of that
Portfolio had been sold to the public during such years.
(b) Annualized.
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the portfolio.
(d) This Class of shares ceased operations on December 4, 1991.
7
<PAGE>
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 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 symbols are
described in the Appendix to the Statement of Additional Information ("SAI").
The Portfolio may also purchase unrated commercial paper provided that such
paper is determined to be of comparable quality by the Portfolio's investment
adviser in accordance with guidelines approved by the Fund's Board of Directors.
Commercial paper issues in which the Portfolio may invest include securities
issued by corporations without registration under the Securities Act of 1933
(the "1933 Act") in reliance on the exemption from such registration afforded by
Section 3(a)(3) thereof, and commercial paper issued in reliance on the
so-called "private placement" exemption from registration which is afforded by
Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include instruments issued
by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is a U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there may be no active secondary market in the
notes, the Portfolio will be able (at any time or during 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
8
<PAGE>
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."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. At the time the
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio."
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.
9
<PAGE>
A GIC is a general obligation of the issuing insurance company and not a
separate account. The Portfolio's investments in GICs are not expected to exceed
5% of its total assets at the time of purchase absent unusual market conditions.
GIC investments are subject to the Fund's policy regarding investment in
illiquid securities.
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 investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two highest rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs")
(e.g., commercial paper rated "A-1" or "A-2" by S&P), (3) securities that are
rated at the time of purchase by the only NRSRO rating the security in one of
its two highest rating categories for such securities and (4) securities that
are not rated and are issued by an issuer that does not have comparable
obligations rated by an NRSRO ("Unrated Securities"), provided that such
securities are determined to be of comparable quality to eligible rated
securities. For a more complete description of eligible securities, see
"Investment Objectives and Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
The Money Market Portfolio's investment objectives 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.")
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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 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 (as
defined below). "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.
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MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax and which meet certain ratings
criteria and present minimal credit risks. During periods of normal market
conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is exempt from the regular Federal
income tax and is not an item of tax preference for purposes of the Federal
alternative minimum tax ("Tax-Exempt Interest"), although to the extent the
Portfolio invests in certain private activity bonds issued after August 7, 1986
("Alternative Minimum Tax Securities"), a portion of the interest earned by the
Portfolio may constitute an item of tax preference for purposes of the Federal
alternative minimum tax ( "AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by a
Portfolio, the Portfolio may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding 397 calendar days, depending upon the instrument involved. The absence
of such an active secondary market, however, could make it difficult for the
Portfolio to dispose of a variable rate demand note if the issuer defaulted on
its payment obligation or during the periods that the Portfolio is not entitled
to exercise its demand rights. The Portfolio could, for this or other reasons,
suffer a loss to the extent of the default. The Portfolio invests in variable
rate demand notes only when the Portfolio's investment adviser deems the
investment to involve min
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<PAGE>
imal credit risk. The Portfolio's investment adviser also monitors the
continuing creditworthiness of issuers of such notes to determine whether the
Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should be aware of
the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-by
Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies -- Money Market Portfolio-- Eligible
Securities."
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, 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 deemed illiquid for
purposes of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted secu
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rities under the supervision of the Board of Directors. See "Investment
Objectives and Policies--Illiquid Securities" in the Statement of Additional
Information.
The Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
the affirmative vote of the holders of a majority of the Portfolio's outstanding
shares. 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 Municipal
Money Market Portfolio will be achieved. The Portfolio may not, however, change
the following investment limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary purposes 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 the lesser of the dollar amounts
borrowed or 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,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by
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investing in short-term U.S. Treasury bills, notes and other obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities, and
entering into repurchase agreements relating to such obligations. The types of
U.S. Government obligations in which the Portfolio may invest include a variety
of U.S. Treasury obligations, which differ only in their interest rates,
maturities, and times of issuance, and obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, including mortgage-related
securities. Obligations of certain agencies and instrumentalities of the U.S.
Government, such as the Government National Mortgage Association and the
Export-Import Bank of the United States, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal National
Mortgage Association, are supported by the right of the issuer to borrow from
the Treasury; others, such as those of the Student Loan Marketing Association,
are supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so by law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns Sansom
Street Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions, subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. The Portfolio would consider entering into reverse
repurchase agreements to avoid otherwise selling securities during unfavorable
market conditions to meet redemptions. For a description of reverse repurchase
agreements see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-related securities."
Mortgage-related securities may include asset-backed securities which are
backed by mortgages, installment sales contracts, credit card receivables or
other assets and collateralized mortgage obligations ("CMOs") issued or
guaranteed by U.S. Government agencies and instrumentalities or issued by
private companies. Purchasable mortgage-related securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less.
One such type of mortgage-related security in which the Portfolio may
invest is a Government National Mortgage Association ("GNMA") Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA")
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<PAGE>
Certificate. Principal and interest payments on FNMA Certificates are guaranteed
only by FNMA itself, not by the full faith and credit of the U.S. Government. A
third type of mortgage-related security in which the Portfolio may invest is a
Federal Home Loan Mortgage Association ("FHLMC") Participation Certificate. This
type of security is guaranteed by FHLMC as to timely payment of principal and
interest but, like a FNMA security, it is not guaranteed by the full faith and
credit of the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC,
see "Mortgage Related Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as the Portfolio), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as twenty or thirty years, the borrowers
can, and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. This means that, in times of
declining interest rates, some of the Portfolio's higher yielding securities
might be repaid and thereby converted to cash and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase additional
securities. The Portfolio normally will not distribute principal payments
(whether regular or prepaid) to its shareholders. Interest received by the
Portfolio will, however, be distributed to shareholders in the form of
dividends.
To compare the prepayment risk for various mortgage-related securities,
various independent mortgage-related securities dealers publish average
remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when it believes that the price of security may decline, causing
a decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for Federal income tax purposes and for certain
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the
Portfolio's custodian or a qualified sub-custodian. While the short sale is
open, the Portfolio will maintain in a segregated account an amount of
securities equal in
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<PAGE>
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
Illiquid Securities. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days 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 Government Obligations 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 the Portfolio's
outstanding shares. 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
Government Obligations Money Market Portfolio will be achieved. The investment
limitations summarized below may not be changed, however, without such a vote of
shareholders. (A more detailed description of the following investment
limitations is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is not
for investment leverage, but solely to facilitate management of the
Portfolio by enabling the Portfolio to meet redemption requests where
liquidation of Portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under Federal income tax provisions applicable to regulated
investment companies.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
Sansom Street Shares are sold without a sales load on a continuous basis by
the Fund's Distributor. Purchase of Shares may be made through the Banks acting
on behalf of their customers, including individuals, trusts, partnerships and
corporations who maintain accounts (such as custody, trust or escrow accounts)
with the Banks and who have authorized the Bank to invest in the Fund on the
customer's behalf. Investors may also purchase shares of the Money
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<PAGE>
Market Portfolio through broker-dealers that have entered into a dealer
agreement with the Fund's Distributor (a "Dealer"). The minimum initial
investment by an investor is $1,500. There is no minimum subsequent investment.
Purchases of Shares may be effected through the customer's accounts at the
Banks or investor accounts with the Dealer through procedures established in
connection with the requirements of accounts at the Banks or at such Dealer.
Confirmations of share purchases and redemptions will be sent to the Banks or
such Dealer. Beneficial ownership of Sansom Street Shares will be recorded by
the Banks or such Dealer and reflected in the account statements provided by
such Banks or by such Dealer to investors. If you wish to purchase Sansom Street
Shares, contact your Bank or the Dealer.
The Banks may also impose minimum customer account requirements. Although
the Banks do not impose a sales charge for purchases of Sansom Street Shares,
depending upon the terms of the particular customer account, the Banks may
charge the account fees for automatic investment and other cash management
services. Information concerning these minimum account requirements, services
and any charges will be provided by the Banks before the customer authorizes the
initial purchase of shares. This Prospectus should be read in conjunction with
any information received from the Banks. See "Shareholder Servicing."
The Sansom Street Class of the Money Market Portfolio is also available
through Robertson Stephens, a registered broker-dealer that has entered into a
dealer Agreement with the Fund's Distributor. For distribution services with
respect to that Class of shares of the Portfolio held by this firm, the Fund's
Distributor pays Robertson Stephens up to .25% of the annual average value of
such accounts. Purchases made through this program does not require customers to
pay a transaction fee.
DIRECT PURCHASES THROUGH A DEALER. An investor may make an initial
investment by mail by fully completing and signing an application obtained from
a Dealer (an "Application") and mailing it, together with a check payable to
"Sansom Street Money Market" c/o PFPC, P.O. Box 8950, Wilmington, Delaware
19899. An Application will be returned to the investor unless it contains the
name of the Dealer from whom it was obtained. Subsequent purchases may be made
through a Dealer or by forwarding payment to the Fund's transfer agent at the
foregoing address.
The Fund reserves the right to reject any purchase order.
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
receipt of the order and Federal Funds are available to the Fund. Purchase
orders received after its close of business are priced at the net asset value
next determined on the following Business Day. In those cases in which an
investor pays for Shares by check, Federal Funds will generally become available
two Business Days after the check is received. Purchase orders for Shares are
accepted only on days on which both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open ("Business Days").
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Sansom Street Shares. See "Shareholder Servicing." Institutions,
including banks regulated by the Comptroller of the Currency and investment
advisers and other money managers subject to the jurisdiction of the Securities
and Exchange Commission, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in Sansom Street Shares. See also "Management--Banking Laws."
REDEMPTION OF SHARES
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. It is the responsibility of the Banks, or a broker-dealer that has
entered into a dealer agreement with the Fund's Distributor, to transmit
promptly to PFPC a customer's redemption request. In the case of shareholders
holding share certificates, the certificates must accompany the redemption
request. Investors may redeem all or some of their shares in accordance with one
of the procedures described below.
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REDEMPTION OF SHARES IN AN ACCOUNT FOR BANK CUSTOMERS. A customer may
redeem all or part of his Sansom Street Shares in accordance with instructions
and limitations pertaining to his account at the Bank. Redemption orders are
effected at the net asset value per share determined after receipt of the order
by PFPC. Payment for redemption orders received by PFPC on a Business Day before
12:00 noon Eastern Time will be wired the same day in Federal Funds to the
customer's account at the Bank, 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. Payment for redemption orders which are received between 12:00
noon Eastern Time and 4:00 p.m. Eastern Time on a Business Day will be wired in
Federal Funds to the customer's account on the next bank business day following
receipt of the redemption request. No charge for wiring redemption payments is
imposed by the Fund, although the Banks may charge customer accounts for
redemption services.
REDEMPTION OF SHARES IN AN ACCOUNT FOR NON-BANK CUSTOMERS. 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 banking 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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request to Sansom Street Money Market, c/o
PFPC, P.O. Box 8950, Wilmington, Delaware 19899. It is recommended that such
request be sent by registered or certified mail if share certificates accompany
the request. 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). You may call the Transfer
Agent at (800) 430-9618 to determine whether the entity that will guarantee the
signature is an eligible guarantor. Guarantees must be signed by an authorized
signatory of the STAMP Program and "Signature Guaranteed" must appear with the
signatures.
Direct 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) 430-9618. 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
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<PAGE>
shareholders. No fee is currently contemplated. Neither PFPC nor the Fund will
be liable for any loss, liability, cost or expense for following the procedures
described below or for following instructions communicated by telephone that it
reasonably believes to be genuine.
The Fund's telephone transaction procedures include the following measure:
(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 the 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 checkwriting privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker/dealer may establish a higher minimum. An investor
wishing to use this check writing redemption procedure should complete specimen
signature cards, and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own Shares
through an Account should contact their brokers for signature cards. Investors
with 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 the rules of the Investment Company Act of
1940 (the "1940 Act"), 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 cashed at
other banks.
OTHER REDEMPTION INFORMATION
The Fund ordinarily will make payment for all Shares redeemed within seven
days after receipt by the Fund's transfer agent of a request in proper form.
However, Shares purchased by check will not be redeemed for a period 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 the Shares are redeemed, dividends on such
Shares will accrue and be payable, and an investor will be entitled to exercise
all other rights of beneficial ownership.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in a Sansom Street Class involuntarily, on thirty
days' notice, if such account drops below $500 and during such 30-day period the
shareholder does not increase such account 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.
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Net Asset Value
The net asset value per share of each of the Portfolios for the purpose of
pricing purchase and redemption orders is determined twice each day, once as of
12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on each weekday
with the exception of those holidays on which either the NYSE or the FRB, is
closed. Currently, the NYSE is closed on weekends and the customary national
business holidays of New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed). TheFRB is currently closed on weekends and the same holidays as the
NYSE is closed (except Christmas Day (observed)), as well as Martin LutherKing,
Jr. Day, Veterans Day andColumbus 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 each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
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 for each of the Sansom Street Classes of the
Fund pursuant to separate distribution contracts (collectively, the
"Distribution Contracts") with the Fund on behalf of each of the Sansom Street
Classes. The Distributor pays for the cost of printing (excluding typesetting)
and mailing to prospective investors prospectuses and other materials relating
to the Portfolios of the Fund as well as for related direct mail, advertising
expenses and promotional expenses. The Distributor monitors the support services
provided by the Banks as described in "Shareholder Servicing" below.
DISTRIBUTION ARRANGEMENTS
The Board of Directors of the Fund approved and adopted the Distribution
Contracts and separate Plans of Distribution for each of the Sansom Street
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Sansom Street Class a distribution fee, which is accrued daily and paid
monthly, of up to .20% on an annualized basis of the daily net assets of the
relevant Sansom Street Class. The actual amount of such compensation under the
Plans is agreed upon by the Fund's Board of Directors and by the Distributor.
Under the Distribution Contracts for the Municipal Money Market Portfolio and
the Government Obligations Money Market Portfolio, the Distributor has agreed to
accept compensation for its services thereunder and under the relevant Plan in
the amount of .05% on an annualized basis. Such compensation may be increased,
up to the amount permitted under the Plan, with the approval of the Fund's Board
of Directors. Under the Distribution Contract for the Money Market Portfolio,
the Distributor will receive up to .20% on an annualized basis for compensating
certain broker-dealers with whom Counsellors has distribution arrangements.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Sansom Street Class on any day to the extent necessary to assure that the fee
required to be accrued by such Class does not exceed the income of such Class on
that day. In addition, the Distributor may, in its discretion, voluntarily waive
from time to time all or any portion of its distribution fee.
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<PAGE>
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Sansom Street Class the fee
set forth above. None of the Plans obligates the Fund to reimburse the
Distributor for the actual expenses the Distributor may incur in fulfilling its
obligations under a Plan on behalf of the relevant Sansom Street Class. Thus,
under each of the Plans, even if the Distributor's actual expenses exceed the
fee payable to the Distributor thereunder at any given time, the Fund will not
be obligated to pay more than that fee. If the Distributor's actual expenses are
less than the fee it receives, the Distributor will retain the full amount of
the fee.
Each Plan has been approved by the shareholders of the relevant Sansom
Street Class. Under the terms of Rule 12b-1, each will remain in effect only if
approved at least annually by the Fund's Board of Directors, including those
Directors who are not "interested persons" of the Fund as that term is defined
in the 1940 Act and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto ("12b-1 Directors").
Each of the Plans may be terminated at any time by vote of a majority of the
12b-1 Directors or by vote of a majority of the Fund's outstanding voting
securities of the relevant Sansom Street Class. The fee set forth above will be
paid by the Fund on behalf of the relevant Sansom Street Class to the
Distributor unless and until the relevant Plan is terminated or not renewed.
SHAREHOLDER SERVICING
- --------------------------------------------------------------------------------
The Fund has and will continue to enter into service agreements with the
Banks pursuant to which the Banks will render certain support services to
customers in consideration for payment of .10% (on an annualized basis) of the
average daily net asset value of such Shares. Such services may include
aggregating and processing purchase and redemption requests from customers and
placing net purchase and redemption orders with PFPC; processing dividend
payments from the Fund on behalf of customers; providing information
periodically to customers showing their positions in the Sansom Street Classes;
providing sub-accounting with respect to the Sansom Street Shares beneficially
owned by customers or the information necessary for sub-accounting; and
providing certain statistical and factual information. In accordance with the
conditions of an exemptive order granted by the Securities and Exchange
Commission, each service agreement will provide that a Bank will waive its
servicing fee with respect to a Sansom Street Class on any day to the extent
necessary to assure that the servicing fee required to be accrued by such Class
does not exceed the income of such Class on that day. Customers who are
beneficial owners of Sansom Street Shares should read this Prospectus in light
of the terms governing their accounts with the Banks.
MANAGEMENT
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BOARD OF DIRECTORS
The business and affairs of the Fund and each of its investment portfolios
are managed under the direction of the Fund's Board of Directors. The Fund
currently operates or proposes to operate nineteen separate investment
portfolios. Each of the Sansom Street Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio and the Government Obligations Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809. PNC Bank serves as the sub-adviser for each of the Portfolios.
PNC Bank and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Philadelphia area since 1847.
PNC Bank and its subsidiaries currently manage over $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
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<PAGE>
Bancorp, Inc. PNC Bancorp, Inc., is a bank holding company and a wholly owned
subsidiary of PNC Bank Corp. PNC Bank Corp. is a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolios, and maintains
the Portfolios' financial accounts and records. PNC Bank, as sub-adviser,
provides research and credit analysis and provides PIMC with certain other
services. In entering into Portfolio transactions for a Portfolio with a broker,
PIMC may take into account the sale by such broker of shares by the Fund,
subject to the requirements of best execution.
For the services provided to and expenses assumed by it for the benefit of
each of the Money Market and Government Obligations Money Market Portfolios,
PIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of the average daily net assets
of such Portfolio in excess of $500 million. For services provided and expenses
assumed by it with respect to the Municipal Money Market Portfolio, PIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
PIMC may in its discretion from time to time agree to waive voluntarily all or
any portion of its advisory fee for any Portfolio. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fees paid by the Fund to PIMC with respect to a Portfolio (subject
to certain adjustments). Such sub-advisory fees have no effect on the advisory
fees payable by each Portfolio to PIMC. In addition, PIMC may from time to time
enter into an agreement with one of its affiliates pursuant to which it
delegates some or all of its accounting and administrative obligations under its
advisory agreements with the Fund relating to any Portfolio. Any such
arrangement would have no effect on the advisory fees payable by each Portfolio
to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .20% of the average net assets of the Money Market
Portfolio, .05% of the average net assets of the Municipal Money Market
Portfolio and .30% of the average net assets of the Government Obligations Money
Market Portfolio. For the same period PIMC waived approximately .17%, .28% and
.12% of the average net assets of the Money Market Portfolio, Municipal Money
Market Portfolio and Government Obligations Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market Portfolio
and generally assists such Portfolio in all aspects of its administration and
operations, including matters relating to the maintenance of financial records
and accounting. PFPC is entitled to an administration fee, computed daily,
payable monthly at a rate of .10% of the average daily net assets of the
Municipal 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. 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 each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. These expenses include, but are not limited
to, organizational costs, fees paid to the investment adviser, fees and expenses
of officers and directors who are not affiliated with the Portfolio's investment
adviser or Distributor, taxes, interest, legal fees, custodian fees, auditing
fees, brokerage fees and commissions, certain of the fees and expenses of
registering and qualifying the Portfolio and its shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of
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<PAGE>
additional information annually to existing shareholders that are not
attributable to a particular class of shares of the Fund, the expense of reports
to shareholders, shareholders' meetings and proxy solicitations that are not
attributable to a particular class of shares of the Fund, 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, shareholder servicing payments, transfer agency
expenses, expenses of preparing, printing and distributing prospectuses,
statements of additional information, proxy statements and reports to
shareholders, and registration fees identified as belonging to a particular
class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were .65% of average net assets with respect to the Sansom Street Class of the
Money Market Portfolio (not taking into account waivers and reimbursements of
.17%). Total expenses as a percentage of average net assets for the Sansom
Street Class of the Government Obligations Money Market Portfolio and Municipal
Money Market Portfolio are not reported as no Shares of such Classes had been
sold to the public during the fiscal year ended August 31, 1996.
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but such banking
laws and regulations do not prohibit such a holding company or affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company, or from purchasing shares of such a company as
agent for and upon the order of such a customer. PNC Bank, PIMC, PFPC, as well
as the Banks, are subject to such banking laws and regulations. In addition,
state securities laws on this issue may differ from the interpretations of
Federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Banks in connection with the provision of support
services to their customers, the Fund might be required to alter materially or
cause the Fund to discontinue its arrangements with Banks generally and change
its method of operations with respect to the Sansom Street Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
Customer.
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Sansom Street Class unless
a shareholder elects otherwise.
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<PAGE>
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of 4:00 p.m. Eastern Time. Net
short-term capital gains, if any, will be distributed at least annually.
TAXES
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The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to securities bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income. The maximum marginal rate on
ordinary income for individuals, trusts and estates is currently 31%, while the
maximum rate imposed on net capital gain of such taxpayers is 28%. Corporate
taxpayers are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio intends to pay substantially all of
its dividends as "exempt interest dividends." Investors in this Portfolio should
note, however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" in their Federal income tax returns and
that in two circumstances such amounts, while exempt from regular Federal income
tax, are subject to alternative minimum tax at a rate of 24%, in the case of
individuals, trusts and estates, and 20% in the case of corporate taxpayers.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986, will generally constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability. Although it does not currently intend to do
so, the Municipal Money Market Portfolio may invest up to 100% of its net assets
in such private activity bonds. Secondly, tax-exempt interest and "exempt
interest dividends" derived from all other Municipal Obligations must be taken
into account by corporate taxpayers in determining their adjusted current
earnings adjustment for alternative minimum tax purposes. Shareholders who are
recipients of Social Security Act or Railroad Retirement Act benefits should
further note that tax-exempt interest and "exempt interest dividends" derived
from all types of Municipal Obligations will be taken into account in
determining the taxability of their benefit payments.
The Municipal Money Market Portfolio will determine annually the
percentages of its net investment income which are exempt from the regular
Federal income tax, which constitute items of tax preference for purposes of the
Federal alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided
25
<PAGE>
such dividends are paid during January of the following year. Each Portfolio
intends to make sufficient actual or deemed distributions prior to the end of
each calendar year to avoid liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of the Municipal Money Market Portfolio would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts since such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from such Portfolio's
dividends being tax-exempt but also such dividends would be taxable when
distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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 and Government Obligations 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 SANSOM STREET CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE SANSOM STREET CLASSES.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be
26
<PAGE>
voted upon affects only the interests of the shareholders of a particular
investment portfolio. (See the Statement of Additional Information under
"Additional Information Concerning Fund Shares" for examples when the 1940 Act
requires voting by investment portfolio or by class.) Shareholders of the Fund
are entitled to one vote for each full share held (irrespective of class or
portfolio) and fractional votes for fractional shares held. Voting rights are
not cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of Common Stock of the Fund may elect all of the directors.
As of 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.
The Fund will issue share certificates for any Sansom Street Shares only
upon the written request of a shareholder sent to PFPC.
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) 430-9618.
27
<PAGE>
SANSOM STREET FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO AND
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of three classes (the "Sansom
Street Shares") representing interests in three investment portfolios (the
"Portfolios") of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio,
the Municipal Money Market Portfolio and the Government Obligations Money Market
Portfolio. This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Sansom Street Family Prospectus of
the Fund, dated December 3, 1996 (the "Prospectus"). A copy of the Prospectus
may be obtained by calling the Fund's distributor toll-free at (800) 888-9723.
This Statement of Additional Information is dated December 3, 1996.
CONTENTS
Prospectus
Page Page
---- -----------
General........................................ 2 2
Investment Objectives and Policies............. 2 8
Directors and Officers ........................ 14 N/A
Investment Advisory, Distribution and Servicing
Arrangements ......................... 17 22
Portfolio Transactions ........................ 23 N/A
Purchase and Redemption Information ........... 24 17
Valuation of Shares ........................... 25 21
Taxes ......................................... 27 25
Additional Information Concerning
Fund Shares .......................... 32 26
Miscellaneous.................................. 34 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 three classes of shares (the "Sansom Street Classes") representing
interests in three of the investment portfolios (the "Portfolios") of the Fund:
the Money Market Portfolio, the Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio (the "Government Obligations
Portfolio"). The Sansom Street Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market
Portfolio or the Municipal Money Market Portfolio and whether a variable rate
demand instrument has a remaining maturity of 397 calendar days or less, each
instrument will be deemed by the Portfolio to have a maturity equal to the
longer of the period remaining until its next interest
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rate adjustment or the period remaining until the principal amount can be
recovered through demand. In determining whether an unrated variable rate demand
instrument is an eligible security, the Portfolio's investment adviser will
follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio or the Municipal Money Market Portfolio has firm commitments
outstanding, such Portfolio will maintain in a segregated account with the
Fund's custodian or a qualified sub-custodian, cash, U.S. government securities
or other liquid, high grade debt securities of an amount at least equal to the
purchase price of the securities to be purchased. Normally, the custodian for
the relevant Portfolio will set aside portfolio securities to satisfy a purchase
commitment and, in such a case, such Portfolio may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of such Portfolio's commitment.
It may be expected that such Portfolio's net assets will fluctuate to a greater
degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. Because such Portfolio's liquidity and
ability to manage its portfolio might be affected when it sets aside cash or
portfolio securities to cover such purchase commitments, such Portfolio expects
that commitments to purchase "when issued" securities will not exceed 25% of the
value of its total assets absent unusual market conditions. When either the
Money Market Portfolio or the Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio incurring a loss or
missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio and
the Municipal Money Market Portfolio may enter into stand-by commitments with
respect to obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities (collectively,
"Municipal Obligations") held in its portfolio. Under a stand-by commitment, a
dealer would agree to purchase at the Portfolio's option a specified Municipal
Obligation at its amortized cost value to the Portfolio plus accrued interest,
if any. Stand-by commitments may be exercisable by the Money Market Portfolio or
the Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio and the Municipal Money
Market Portfolio expects that stand-by commitments will generally be available
without the payment of any direct or indirect consideration. However, if
necessary or advisable, either of such Portfolio may pay for a stand-by
commitment either separately in cash or by paying a higher price for portfolio
securities which are acquired subject to the commitment (thus reducing the yield
to maturity otherwise available for the same securities). The total
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amount paid in either manner for outstanding stand-by commitments held by either
such Portfolio will not exceed 1/2 of 1% of the value of such Portfolio's total
assets calculated immediately after each stand-by commitment is acquired.
Each of the Money Market Portfolio and the Municipal Money
Market Portfolio intends to enter into stand-by commitments only with dealers,
banks and broker-dealers which, in the investment adviser's opinion, present
minimal credit risks. Either of such Portfolio's reliance upon the credit of
these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment.
The Money Market Portfolio and the Municipal Money Market
Portfolio will acquire stand-by commitments solely to facilitate portfolio
liquidity and do not intend to exercise their rights thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligation which will continue
to be valued in accordance with the amortized cost method. The actual stand-by
commitment will be valued at zero in determining net asset value. Accordingly,
where either of such Portfolio pays directly or indirectly for a stand-by
commitment, its cost will be reflected as an unrealized loss for the period
during which the commitment is held by such Portfolio and will be reflected in
realized gain or loss when the commitment is exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale
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<PAGE>
"against the box." In a short sale, a seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. If the Portfolio engages in a short sale, the collateral for
the short position will be maintained by the Portfolio's custodian or a
qualified sub-custodian. While the short sale is open, the Portfolio will
maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in short sales against
the box for speculative purposes. A Portfolio may, however, make a short sale as
a hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In such case, any future losses in the Portfolio's long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper
which is issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under the Federal securities
laws and is generally sold to institutional investors such as the 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
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<PAGE>
who make a market in the Section 4(2) paper, thereby providing liquidity. See
"Illiquid Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the
repurchase agreements described in the Prospectus generally equals the price
paid by a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
Since the inception of the mortgage-related pass-through
security in 1970, the market for these securities has expanded considerably. The
size of the primary issuance market, and active participation in the secondary
market by securities dealers and many types of investors, historically have made
interests in government and government-related pass-through pools highly liquid,
although no guarantee regarding future market conditions can be made. The
average life of pass-through pools varies with the maturities of the underlying
mortgage instruments. In addition, a pool's term may be shortened by unscheduled
or early payments of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors including the level of
interest rates, general economic conditions, the location and age of the
mortgages and various social and demographic conditions. Because prepayment
rates of individual pools vary widely, it is not possible to predict accurately
the average life of a particular pool. For pools of fixed rate 30 year
mortgages, common industry practice is to assume that prepayments will result in
a 12 year average life. Pools of mortgages with other maturities or different
characteristics will have varying assumptions concerning average life. The
assumed average life of pools of mortgages having terms of less than 30 years is
less than 12 years, but typically not less than 5 years. Yields on pass-through
securities are typically quoted by investment dealers and vendors based on the
maturity of the underlying instruments and the associated average life
assumption. In periods of falling interest rates, the rate of prepayment tends
to increase, thereby shortening the actual average life of a pool of underlying
mortgage-related securities. Conversely, in periods of rising rates the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Historically, actual average life has been consistent with the
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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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("S&P") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, "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
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unconditional, provided that the demand feature satisfies (2), (3) or (4) above,
and the demand instrument or long-term obligations of the issuer satisfy (2) or
(4) above for long-term debt obligations. The Board of Directors will approve or
ratify any purchases by the Money Market and Government Obligations Money Market
Portfolios of securities that are rated by only one NRSRO or that are Unrated
Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio and the Government Obligations Money Market Portfolio,
repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
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SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after such
borrowing there is asset coverage of at least 300 percent for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate any of its assets except in
connection with such borrowing and then, with respect to the Money Market
Portfolio, in amounts not in excess of 10% of the value of a Portfolio's total
assets at the time of the borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Portfolio's total assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient);
(2) purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of
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such purchase more than 5% of a Portfolio's total assets would be invested in
the securities of such issuer, or more than 10% of the outstanding voting
securities of such issuer would be owned by the Portfolio, except that up to 25%
of the value of a Portfolio's assets may be invested without regard to this 5%
limitation;
(3) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, a Portfolio may be
deemed an underwriter under Federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter into
repurchase agreements;
(10) purchase any securities issued by any other investment company except
in connection with the merger, consolidation, acquisition or reorganization of
all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) invest under normal conditions less
than 80% of its net assets in securities the interest on which is exempt from
the regular Federal income tax, although the interest on such securities may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax; (ii) invest in private activity bonds where
-10-
<PAGE>
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the affected Portfolio or (b) 67% or more of the shares of the affected
Portfolio present at a shareholders' meeting if more than 50% of the outstanding
shares of the affected Portfolio are represented at the meeting in person or by
proxy.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change may
require the approval of the Securities and Exchange Commission and would be
disclosed in the Sansom Street Classes 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 Money
Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described
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<PAGE>
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.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if after
the acquisition of the Put the Municipal Money Market Portfolio has more than 5%
of its total assets invested in instruments issued by or subject to Puts from
the same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Municipal Money Market Portfolio's total
assets. A "Put" means a right to sell a specified underlying instrument within a
specified period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS PORTFOLIO. The Government Obligations Portfolio may
not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities, and repurchase agreements
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<PAGE>
relating to such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of obligations
that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and except for
reverse repurchase agreements, and then in an amount not exceeding 10% of the
value of the Portfolio's total assets, and only if after such borrowing there is
asset coverage of at least 300 percent for all borrowings of the Portfolio; or
mortgage, pledge or hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to facilitate
management of the Portfolio by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans, except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares of the
Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
--------------------
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
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<PAGE>
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 Since 1986 Director and Assistant
Managing Secretary, E.M. Warburg,
466 Lexington Avenue Pincus & Co., Inc.;
New York, NY 10017 Since 1990, Chief
Executive Officer and
since 1991, Secretary,
Counsellors Securities
Inc.; Officer of
various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky, 58** Director Since OCTOBER 1996,
110 Wall Street SENIOR VICE PRESIDENT
New York, NY 10005 OF FAHNESTOCK & CO.,
INC. 1985 TO 1996,
Executive Vice President
of Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc.
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.)
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<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ -----------------------
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, Inc.
(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 Chairman, 1969 to
16th Floor present, Comcast
Philadelphia, PA Corporation; Director,
19107-3723 Comcast Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (Wireless
Communications).
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
Insurance Co.
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<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ -----------------------
Edward J. Roach, 72 President Certified Public
Suite 100 and Treasurer Accountant; Vice
Bellevue Park Chairman of the Fox
Corporate Center Chase Cancer Center;
400 Bellevue Parkway Trustee Emeritus,
Wilmington, DE 19808 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, the law
1100 PNB Bank Building firm of Drinker
Broad and Chestnut Sts Biddle and Reath,
Philadelphia, PA 19107 Philadelphia,
Pennsylvania;
Director, Rocking Horse
Child Care Centers of
America, Inc.
- --------------
* 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, and his position as President
of the Fund.
** 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
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<PAGE>
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 RODIN 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-ADVISER and the Fund's custodian,
PFPC Inc. ("PFPC"), the Municipal Money Market Portfolio's administrator and the
Fund's transfer and dividend disbursing agent, and Counsellors Securities Inc.
(the "Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PIMC and PNC Bank and the fees received by PIMC and PNC
Bank for such services are described in the Prospectus. PIMC renders advisory
services to each of the Portfolios and also renders administrative services to
the Money Market and Government Obligations Money Market Portfolios pursuant to
separate investment advisory agreements. The advisory agreements relating to the
Money Market and Government Obligations Money Market Portfolios are each dated
August 16, 1988 and the advisory agreement relating to the Municipal Money
Market Portfolio is dated April 21, 1992. PNC Bank renders sub-advisory services
to each of the Portfolios pursuant to separate sub-advisory agreements, each
dated August 16, 1988. Such advisory and sub-advisory agreements are hereinafter
collectively referred to as the "Advisory Contracts."
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<PAGE>
For the year ended August 31, 1996, PIMC RECEIVED (AFTER WAIVERS)
$4,174,375 WITH RESPECT TO THE MONEY MARKET PORTFOLIO, $190,687 IN ADVISORY FEES
WITH RESPECT TO MUNICIPAL MONEY MARKET PORTFOLIO, AND $1,638,622 IN ADVISORY
FEES WITH RESPECT TO GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO AND $671,811 OF ADVISORY FEES WITH RESPECT TO THE
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO UNDER ITS ADVISORY CONTRACT WITH
THE FUND. FOR THE YEAR ENDED AUGUST 31, 1995, PIMC received (after waivers)
$2,274,697 with respect to the Money Market Portfolio, $67,752 in advisory fees
with respect to the Municipal Money Market Portfolio, and $780,122 in advisory
fees with respect to Government Obligations Money Market Portfolio. During that
same year, PIMC waived $2,589,882 of advisory fees with respect to the Money
Market Portfolio, $1,041,321 of advisory fees with respect to the Municipal
Money Market Portfolio and $398,363 of advisory fees with respect to the
Government Obligations Money Market Portfolio under its Advisory Contract with
the Fund. For the year ended August 31, 1994, PIMC received (after waivers)
$1,947,768 in advisory fees with respect to the Money Market Portfolio and
$7,733 in advisory fees with respect to the Municipal Money Market Portfolio,
$580,435 in advisory fees with respect to the Government Obligations Money
Market Portfolio. During that same year, PIMC waived $2,255,986 of advisory fees
with respect to the Money Market Portfolio and $1,091,646 of advisory fees with
respect to Municipal Money Market Portfolio, $461,938 of advisory fees with
respect to the Government Obligations Money Market Portfolio under its Advisory
Contract with the Fund.
As required by various state regulations, PIMC will reimburse the Fund or a
portfolio of the Fund affected (as applicable) if and to the extent that the
aggregate operating expenses of the Fund or a Portfolio affected exceed
applicable state limits for the fiscal year, to the extent required by such
state regulations. Currently, the most restrictive of such applicable limits is
2.5% of the first $30 million of average annual net assets, 2% of the next $70
million of average annual net assets and 1 1/2% of the remaining average annual
net assets. Certain expenses, such as brokerage commissions, taxes, interest and
extraordinary items, are excluded from this limitation. Whether such expense
limitations apply to the Fund as a whole or to each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically assumed by
PIMC. General expenses of the Fund not readily identifiable as belonging to a
portfolio of the Fund are allocated among all investment portfolios of the Fund
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 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
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<PAGE>
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, service organization
payments, transfer agency expenses, 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
relevant 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 by the shareholders of the
Money Market and Government Obligations Money Market Portfolios at a special
meeting held December 22, 1989, as adjourned. The advisory agreement was
approved with respect to the Municipal Money Market Portfolio by shareholders at
a special meeting held on June 10, 1992, as adjourned and the sub-advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held on December 22, 1989, as adjourned. Each
Advisory Contract is terminable by vote of the Fund's Board of Directors or by
the holders of a majority of the outstanding voting securities of the relevant
Portfolio, at any time without penalty, on 60 days' written notice to PIMC or
PNC Bank. Each of the Advisory
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<PAGE>
Contracts may also be terminated by PIMC or PNC Bank, respectively, on 60 days'
written notice to the Fund. Each of the Advisory Contracts terminates
automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENT. PFPC serves as the administrator to the Municipal
Money Market Portfolio pursuant to an Administration and Accounting Services
Agreement dated April 21, 1992 (the "Administration Agreement"). PFPC has agreed
to furnish to the Fund on behalf of the Municipal Money Market Portfolio,
statistical and research data, clerical, accounting, and bookkeeping services,
and certain other services required by the Fund. PFPC has also agreed to prepare
and file various reports with the appropriate regulatory agencies, and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of the agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market Portfolio.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Sansom Street Shares pursuant to a Transfer
Agency Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems shares of each of the Sansom Street Classes,
(b) addresses and mails all communications by each of the Sansom Street Classes
to record owners of shares of each such Class,
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<PAGE>
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (c) maintains shareholder accounts
and, if requested, sub-accounts and (d) makes periodic reports to the Fund's
Board of Directors concerning the operations of each Sansom Street Class. PFPC
may, on 30 days' notice to the Fund, assign its duties as transfer and dividend
disbursing agent to any other affiliate of PNC Bank Corp. For its services to
the Fund under the Transfer Agency Agreement, PFPC receives a fee at the annual
rate of $15.00 per account in each Portfolio for orders placed via third parties
and relayed electronically to PFPC, and $17.00 per account in each Portfolio for
all other orders, exclusive of out-of-pocket expenses and also receives
reimbursement of its out-of-pocket expenses.
DISTRIBUTION AND SERVICING AGREEMENTS. Pursuant to the terms of a
distribution agreement, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of the Sansom Street Classes
(collectively, the "Distribution Contracts"), and separate Plans of Distribution
for each of the Sansom Street Classes (collectively, the "Plans"), all of which
were adopted by the Fund in the manner prescribed by Rule 12b-1 under the 1940
Act, the Distributor will use its best efforts to distribute shares of each of
the Sansom Street Classes. As compensation for its distribution services, the
Distributor will receive, pursuant to the terms of the Distribution Contracts, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus.
Each of the Plans relating to the relevant Sansom Street Class as amended
was most recently approved for continuation 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 Plans or any agreements related to the Plans ("12b-1 Directors"). The
Plans were also each approved by the shareholders of the respective Sansom
Street Classes at a special meeting held December 22, 1989, as adjourned.
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the affected Sansom Street Class under the Plan shall not be
materially increased without the affirmative vote of the holders of a majority
of the Fund's shares of the affected Sansom Street 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.
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<PAGE>
During the year ended August 31, 1996, the Fund paid distribution fees to
the Fund's Distributor under the Plans for each of the Sansom Street Classes of
the Money Market Portfolio, the Municipal Money Market Portfolio and the
Government Obligations Money Market Portfolio in the aggregate amounts of
$316,107, $0 and $0, respectively. Of those amounts $83,056 was paid to
Robertson Stephens and $233,051 was retained by the Fund's Distributor and
used to pay certain advertising and promotion, printing, postage, legal fees,
travel and entertainment, sales and marketing and administrative expenses.
During the fiscal year ended August 31, 1996 no shares of the Sansom Street
Classes of the Municipal Money Market and Government Obligations Money Market
Portfolios were sold to the public. The Fund believes that such Plans may
benefit the Fund by increasing sales of Shares. Mr. Reichman, a Director of the
Fund, has an indirect financial interest in the operation of the Plans by virtue
of his position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plans by virtue of his previous position as Executive Vice President of
Gruntal & Co., Inc., a broker-dealer which sells the Fund's shares.
As stated in the Prospectus for the Sansom Street Classes, the Fund has
entered into agreements with banks that are affiliated with PNC Financial Corp
(the "Banks") that are record holders of Shares of the Sansom Street Classes
pertaining to the provision of support services to the Banks' Customers who are
the beneficial owners of Shares of the Sansom Street Classes ("Customers") in
consideration of the Fund's payment of .10% (on an annualized basis) of the net
asset value of such Shares. Such services include: (i) aggregating and
processing purchase and redemption requests from Customers and placing net
purchase and redemption orders with the PFPC; (ii) periodically providing
Customers information showing their positions in shares; (iii) processing
dividend payments from the Fund on behalf of Customers; (iv) arranging for bank
wires; (v) responding to Customer inquiries relating to the services performed
by the service organization; (vi) providing sub-accounting with respect to
shares of the Sansom Street Classes beneficially owned by Customers or the
information necessary for sub-accounting; (vii) forwarding shareholder
communications from the Fund (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Customers, if required by law; and (viii) other similar services if requested by
the Fund. The Banks also agree to maintain records relating to transactions in
shares of the Sansom Street Classes, and to provide the Fund with such
statistical and factual information as the Fund may request. Agreements between
the Fund and the Banks are terminable at any time by the Fund without penalty.
The Distributor will monitor the support services provided by the Banks under
such agreements.
During the year ended August 31, 1996, the Fund paid fees to Banks under
the relevant agreements for the Sansom Street Classes of each of the Money
Market Portfolio, Municipal Money Market Portfolio and Government Obligations
Money Market Portfolio in the AMOUNT of $471,499, $0 and $0, respectively.
During the year ended August 31, 1995, the Fund paid fees to Banks under the
relevant agreements for the SANSOM Street Classes of each of the Money Market
Portfolio, Municipal Money Market Portfolio and Government
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Obligations Money Market Portfolio in the amounts of $391,361, $0 and $0
respectively. During the year ended August 31, 1994, the Fund paid fees to Banks
under the relevant agreements for the Sansom Street Classes of each of the Money
Market Portfolio, Municipal Money Market Portfolio and the Government
Obligations Money Market Portfolio in the amounts of $311,525, $0 and $0
respectively.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase only securities with remaining
maturities of 397 calendar days or less, except for securities that are subject
to repurchase agreements (which in turn may have maturities of 397 calendar days
or less), and except that each of the Money Market Portfolio and Municipal Money
Market Portfolio may purchase variable rate securities with remaining maturities
of 397 calendar days or more so long as such securities comply with conditions
established by the SEC under which they may be considered to have remaining
maturities of 397 calendar days or less. Because each of the Portfolios intends
to purchase only securities with remaining maturities of 397 calendar days or
less, its portfolio turnover rate will be relatively high. However, because
brokerage commissions will not normally be paid with respect to investments made
by each such Portfolio, the turnover rate should not adversely affect such
Portfolio's net asset value or net income. The Portfolios do not intend to seek
profits through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, PIMC will effect transactions with
those dealers it believes provide the most favorable prices and are capable of
providing efficient executions. In no instance will portfolio securities be
purchased from or sold to the Distributor, PIMC or PNC Bank or any affiliated
person of the foregoing entities except to the extent permitted by SEC exemptive
order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of commercial paper or
dealers selling commercial paper to consider the repurchase of such securities
from a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity
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makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by PIMC or PNC Bank are made independently of each other in the light of
differing conditions. However, the same investment decision may occasionally be
made for two or more of such accounts. In such cases, simultaneous transactions
are inevitable. Purchases or sales are then averaged as to price and allocated
as to amount according to a formula deemed equitable to each such account. While
in some cases this practice could have a detrimental effect upon the price or
value of the security as far as a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which PIMC or PNC Bank or any affiliated person (as defined in
the 1940 Act) thereof is a member except pursuant to procedures adopted by the
Fund's Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Fund's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that PIMC and PNC Bank not participate in or benefit from the sale to
a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash up to the lesser of
$250,000 or 1% of its net asset value during any 90-day period for any one
shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
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A shareholder of record may be required by the Fund's Board of Directors to
redeem shares in any Class if the balance in such shareholder's account drops
below $500 and the shareholder does not increase its balance to at least $500
upon 30 days' written notice. If a Customer has agreed with a particular Bank to
maintain a minimum balance in his account, and the balance in the Bank account
falls below that minimum, the Customer may be obliged to redeem all or part of
his shares in each Portfolio to the extent necessary to maintain the minimum
balance required.
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each of the Portfolios at $1.00 per share. Net asset value per share, the value
of an individual share in a Portfolio, is computed by dividing a Portfolio's net
assets by the number of outstanding shares of a Portfolio. A Portfolio's "net
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. The Fund's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and as of 4:00 p.m. (Eastern Time), on each
Business Day. "Business Day" means each day, Monday through Friday, when both
the NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE IS closed on WEEKENDS AND 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 each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or
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reduce material dilution or other unfair results to shareholders. Such action
may include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity greater than 397 calendar days under Rule 2a-7 of the 1940 Act, 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 record keeping
procedures concerning such credit determination. There is no assurance that
constant net asset value will be maintained. In the event amortized cost ceases
to represent fair value in the judgment of the Fund's Board of Directors, the
board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and effective
yields are computed using standardized methods required by the SEC. The
annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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 yields for the seven (7) day period ended August 31, 1996 for the
Sansom Street Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio and the Government Obligations Money Market Portfolio were
5.00%, 0% and 0%, respectively. The effective yields for the same period for the
same classes were 5.12%, 0% and 0%, respectively. The tax equivalent yield for
the same period for the Sansom Street Class of the Municipal Money Market
Portfolio was 0% (assuming an income tax rate of 28%).
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<PAGE>
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on savings account or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's Investors
Service, Inc. and Standard & Poor's Corporation represent their respective
opinions as to the quality of the obligations they undertake to rate. Ratings,
however, are general and are not absolute standards of quality. Consequently,
obligations with the same rating, maturity and interest rate may have different
market prices. In addition, subsequent to its purchase by a Portfolio, an issue
may cease to be rated or may have its rating reduced below the minimum required
for purchase. In such an event, PIMC will consider whether a Portfolio should
continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money Fund
Average, which is an average compiled by IBC/Donoghue's MONEY FUND REPORT(R) of
Holliston, MA 01746, a widely recognized independent service 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 Portfolios and their shareholders that are not described
in the Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Portfolios or their shareholders, and the discussion
here and in the Prospectus is not intended as a substitute for careful tax
planning. Investors are urged to consult their tax advisers with specific
reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated investment company
under Part I of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, each Portfolio is
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<PAGE>
exempt from Federal income tax on its net investment income and realized capital
gains which it distributes to shareholders, provided that it distributes an
amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement each Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the sale or other
disposition of stock or securities or foreign currencies, or from other income
derived with respect to its business of investing in such stock, securities, or
currencies (the "Income Requirement") and derive less than 30% of its gross
income from the sale or other disposition of any of the following investments if
such investments were held for less than three months: (a) stock or securities
(as defined in Section 2(a)(36) of the 1940 Act); (b) options, futures or
forward contracts (other than options, futures or forward contracts on foreign
currencies); and (c) foreign currencies (or options, futures or forward
contracts on foreign currencies) but only if such currencies (or options,
futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income, "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a partnership or
trust will satisfy the Income Requirement only to the extent such income is
attributable to items of income of the partnership or trust that would satisfy
the Income Requirement if they were realized by a regulated investment company
in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Portfolio's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other
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issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in informal rulings
issued to other taxpayers, that the issuer of a repurchase agreement is the bank
or dealer from which securities are purchased. The Money Market Portfolio and
Government Obligations 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 it
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio is designed to provide investors with
current tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Municipal Money Market Portfolio are not included in the
shareholder's gross income for regular Federal income tax purposes. In order for
the Municipal Money Market Portfolio to pay exempt interest dividends during any
taxable year, at the close of each fiscal quarter at least 50% of the value of
such Portfolio must consist of exempt interest obligations.
All shareholders required to file a Federal income tax return are required
to report the receipt of exempt interest dividends and other exempt interest on
their returns. Moreover, while such dividends and interest are exempt from
regular Federal income tax, they may be subject to alternative minimum tax as
described in the Prospectus. By operation of the adjusted current earnings
alternative minimum tax adjustment, exempt interest income received by certain
corporations may be taxed at an effective rate of 15%. In addition, corporate
investors should note that under the Superfund Amendments and Reauthorization
Act of 1986, an environmental tax is imposed for taxable years beginning after
1986 and before 1996 at the rate of 0.12% on the excess of the modified
alternative minimum taxable income of corporate taxpayers over $2 million,
regardless of whether such taxpayers are liable for alternative minimum tax.
Receipt of exempt interest dividends may result in collateral Federal income tax
consequences to certain other taxpayers, including financial institutions,
property and casualty insurance companies, individual recipients of Social
Security or Railroad Retirement benefits, and foreign corporations engaged in a
trade or business in the United States. Prospective investors should consult
their own tax advisors as to such consequences.
The Municipal Money Market Portfolio may not be an appropriate investment
for entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined under
U.S. Treasury Regulations to include a nonexempt person who regularly uses a
part of such facilities in his trade or business and (a)
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whose gross revenues derived with respect to the facilities financed by the
issuance of bonds are more than 5% of the total revenue derived by all users of
such facilities, (b) who occupies more than 5% of the entire usable area of such
facilities, or (c) for whom such facilities or a part thereof were specifically
constructed, reconstructed or acquired. "Related persons" include certain
related natural persons, affiliated corporations, a partnership and its partners
and an S Corporation and its shareholders.
Each of the Money Market Portfolio and Municipal Money Market Portfolio may
acquire standby commitments with respect to Municipal Obligations held in its
portfolio and will treat any interest received on Municipal Obligations subject
to such standby commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2
C.B. 34, the Internal Revenue Service held that a mutual fund acquired ownership
of municipal obligations for federal income tax purposes, even though the fund
simultaneously purchased "put" agreements with respect to the same municipal
obligations from the seller of the obligations. The Fund will not engage in
transactions involving the use of standby commitments that differ materially
from the transaction described in Rev. Rul. 82-144 without first obtaining a
private letter ruling from the Internal Revenue Service or the opinion of
counsel.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio is not deductible for income tax
purposes if (as expected) the Municipal Money Market Portfolio distributes
exempt interest dividends during the shareholder's taxable year.
Distributions of net investment income received by a Portfolio from
investments in debt securities (other than interest on tax-exempt Municipal
Obligations) and any net realized short-term capital gains distributed by a
Portfolio will be taxable to shareholders as ordinary income and will not be
eligible for the dividends received deduction for corporations. Although the
Municipal Money Market Portfolio generally does not expect to receive net
investment income other than Tax-Exempt Interest and AMT Interest, up to 20% of
the net assets of such Portfolio may be invested in Municipal Obligations that
do not bear Tax-Exempt Interest and AMT Interest, and any taxable income
recognized by such Portfolio will be distributed and taxed to its shareholders
in accordance with the foregoing rules.
While none of the Portfolios expects to realize long-term capital gains,
any net realized long-term capital gains, such as gains from the sale of debt
securities and realized market discount on tax-exempt Municipal Obligations will
be distributed annually. None of the Portfolios will have tax liability with
respect to such gains and the distributions will be taxable to Portfolio
shareholders as long-term capital gains, regardless of how long a shareholder
has held Portfolio shares. The aggregate amount of distributions designated by a
Portfolio as capital gain dividends may not exceed the net capital gain of such
Portfolio for any taxable year, determined by excluding any net capital loss or
net long-term 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
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Fund to shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax Reform Act
of 1986 and subsequent legislation have not entirely eliminated the distinction
between capital gain and ordinary income distributions. The nominal maximum
marginal rate on ordinary income for individuals, trusts and estates is 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 marginal rate to exceed 31%. The
maximum rate on the net capital gain of individuals, trusts and estates,
however, is in all cases 28%. Capital gains and ordinary income of corporate
taxpayers are taxed at a nominal rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on municipal obligations in the case of the Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
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 one-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, none of the Portfolios
anticipates incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends (other than exempt interest dividends)
paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly
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change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
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, 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 COMMON STOCK, 100 million shares are classified as
Class EE COMMON STOCK, 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
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<PAGE>
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 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 I Common Stock, Class J
Common Stock and Class K Common Stock constitute the Sansom Street Family
Classes. Under the Fund's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
-33-
<PAGE>
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 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 INTERESTS 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
-34-
<PAGE>
separate voting requirements and may be effectively acted upon by shareholders
of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, 1735 Market
Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as counsel to the
Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle & Reath, 1100
Philadelphia National Bank Building, Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19107, serves as counsel to the Fund's independent directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P. 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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
4943 King Arthur Drive
Erie, PA 16506
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
JOHN Robert Estrada and 16.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
ERIC Levine and Linda & Howard Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light Co. Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
161 Forbes Road, Suite 201
Braintree, MA 02184
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
Carlisle, KY 40311
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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 LP 18.7
C/O ASSET MANAGEMENT ADVISORS INC.
1001 N. US HWY
SUITE 800
JUPITER, FL 33447
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BANK OF NEW YORK 9.8
TRST SUNKIST GROWERS INC.
14130 RIVERSIDE DRIVE
SHERMAN OAKS, CA 91423-2392
N/I GROWTH AND VALUE FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market Janney Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
JANNEY Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government Janney Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT OBLIGATIONS Philadelphia, PA 19103-1675
MONEY)
JANNEY Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
-42-
<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 a
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 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.
DESCRIPTION OF MUNICIPAL NOTES RATINGS
The rating SP-1 is the highest rating assigned by Standard &
Poor's to municipal notes and indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
A-1
<PAGE>
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
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
Investment Income
Interest .................................. $118,092,977
------------
Expenses
Investment advisory fees .................. 7,702,090
Distribution fees ......................... 9,304,376
Service organization fees ................. 471,499
Directors' fees ........................... 38,473
Custodian fees ............................ 345,973
Transfer agent fees ....................... 3,044,149
Legal fees ................................ 77,139
Audit fees ................................ 61,049
Registration fees ......................... 434,000
Insurance expense ......................... 43,932
Printing fees ............................. 426,220
Miscellaneous ............................. 1,884
------------
21,950,784
Less fees waived .......................... (3,543,632)
Less expense reimbursement
by advisor .............................. (342,158)
------------
Total expenses ....................... 18,064,994
------------
Net investment income ..................... 100,027,983
------------
Realized loss on investments .............. (12,987)
------------
Net increase in net assets
resulting from operations ............... $100,014,996
=============
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 100,027,983 $ 64,913,329
Net loss on investments .................. (12,987) (18,463)
-------------- -------------
Net increase in net assets
resulting from operations .............. 100,014,996 64,894,866
-------------- -------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ......................... (49,874,649) (38,765,552)
Cash Preservation shares ............... (10,092) (11,336)
Janney Montgomery Scott shares ......... (24,434,566) (4,784,092)
RBB shares ............................. (2,630) (2,530)
Sansom Street shares ................... (25,706,046) (21,349,819)
-------------- --------------
Total distributions
to shareholders .................... (100,027,983) (64,913,329)
-------------- --------------
Net capital share transactions ............. 374,464,737 736,630,198
-------------- --------------
Total increase in net assets ............... 374,451,750 736,611,735
Net Assets:
Beginning of year ........................ 1,821,371,688 1,084,759,953
-------------- --------------
End of year .............................. $2,195,823,438 $1,821,371,688
============== ==============
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- --------
Income from investment operations:
Net investment income ............ 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities
(both realized and unrealized) .. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income) ............. (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from
capital gains) ................. -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ............ (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ....................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year .......... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average
net assets ..................... .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income
to average net assets ........... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial highlights relate soley to the Sansom Street Class of shares
within the portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family, and the Bradford Family.
The Sansom Street Family represents interests in the Money Market Portfolio,
which is covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Portfolio seeks to maintain net asset value
per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly owned subsidiary of PNC Asset Management Group,
Inc., which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment advisor for the portfolio
described herein. PNC Bank serves as the sub-advisor for the Money Market
Portfolio.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on the portfolio's average daily net
assets:
.45% of first $250 million of net assets;
.40% of next $250 million of net assets;
.35% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for this portfolio. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
investment portfolio were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
-------------- -------------- --------------
$7,702,090 $(3,527,715) $4,174,375
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolio. In addition, PNC Bank serves as custodian for the Fund's portfolios.
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp.,
serves as each class's transfer and dividend disbursing agent.
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the investment
portfolio were as follows:
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- -------------- ---------------
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery
Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total $3,044,149 $(15,917) $3,028,232
========== ======== ===========
The Fund, on behalf of each class of shares within this investment
portfolio, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Cash Preservation, Janney
Montgomery Scott and RBB Classes and up to .20% on an annualized basis for the
Sansom Street Class.
11
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31, 1996, distribution fees for each class were
as follows:
DISTRIBUTION
FEE
------------
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
----------
Total $9,304,376
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996 service
organization fees were $471,499 for the Money Market Portfolio.
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
MONEY MARKET PORTFOLIO
--------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277
Cash Preservation Class 122,344 84,527
Janney Montgomery Scott Class 2,359,936,867 855,058,809
RBB Class 584,206 31,504
Sansom Street Class 2,191,596,362 1,864,628,110
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204
Cash Preservation Class 10,084 11,226
Janney Montgomery Scott Class 24,077,173 4,534,944
RBB Class 2,625 2,500
Sansom Street Class 18,389,361 16,689,941
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052)
Cash Preservation Class (165,733) (91,268)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656)
RBB Class (580,821) (23,917)
Sansom Street Class (2,127,237,313) (1,813,444,951)
--------------- ---------------
Net increase $ 374,464,737 $ 736,630,198
=============== ===============
Sansom Street Shares authorized 1,000,000,000 1,000,000,000
=============== ===============
12
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
Capital paid-in:
Bedford Class $1,109,351,734
Cash Preservation Class 202,360
Janney Montgomery Scott Class 561,873,247
RBB Class 61,412
Sansom Street Class 524,367,399
Other Classes 800
Accumulated net realized gain (loss)
on investments
Bedford Class (17,400)
Cash Preservation Class (3)
Janney Montgomery Scott Class (7,821)
RBB Class (1)
Sansom Street Class (8,289)
--------------
$2,195,823,438
==============
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, $33,513 capital loss carryovers were available to
offset future realized gains of which $2,062 expires in 2002, $18,464 expires in
2003 and $12,987 expires in 2004.
13
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interest in the Money Market Portfolio: Bedford, Cash Preservation, Janney
Montgomery Scott and RBB. Each class is marketed to different types of
investors. Financial Highlights of the RBB and Cash Preservation classes are not
presented in this report due to their immateriality. Such information is
available in the annual reports of each respective family. The financial
highlights of certain of the other classes are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ............ 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ........ -- -- -- -- 0.0007
---------- ---------- ---------- ---------- ----------
Total from investment
operations ................... 0.0469 0.0486 0.0278 0.0243 0.0382
---------- ---------- ---------- ---------- ----------
Less distributions
Dividends (from net
investment income) .............. (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from
capital gains) .................. -- -- -- -- (0.0007)
---------- ---------- ---------- ---------- ----------
Total distributions ........... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return ....................... 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) .... $1,109,334 $ 935,821 $ 710,737 $ 782,153 $ 736,842
Ratios of expenses to average
net assets ...................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets ........... 4.69% 4.86% 2.78% 2.43% 3.75%
<FN>
(a) Without the waiver of advisory and 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%,
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
14
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31,1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
MONEY MARKET PORTFOLIO
-----------------------------------
FOR THE PERIOD
FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ----------------
Net asset value,
beginning of period .................. $ 1.00 $ 1.00
-------- --------
Income from investment
operations:
Net investment income ................ 0.0465 0.0112
-------- --------
Total from investment
operations ....................... 0.0465 0.0112
-------- --------
Less distributions
Dividends (from net
investment income) ................... (0.0465) (0.0112)
-------- --------
Total distributions ................ (0.0465) (0.0112)
-------- --------
Net asset value, end of period ......... $ 1.00 $ 1.00
======== ========
Total Return ........................... 4.76% 5.30%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ...... $561,865 $443,645
Ratios of expenses to
average net assets ................. 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets ................. 4.65% 5.04%(b)
(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 1.23% for the year ended
August 31, 1996 and 1.23% annualized for the period ended August 31, 1995.
(b) Annualized.
15
<PAGE>
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.
- ------------------------------------------------------
CONTENTS
PAGE
Introduction ................................... 2
Financial Highlights ........................... 3
Investment Objectives and Policies ............. 5
Additional Investment Objectives and Policies .. 7
Purchase and Redemption of Shares .............. 10
Distribution of Shares ......................... 13
Shareholder Servicing .......................... 14
Management ..................................... 14
Dividends and Distributions .................... 16
Taxes .......................................... 16
Description of Shares .......................... 17
Other Information .............................. 18
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
DISTRIBUTOR
Counsellors Securities Inc.
New York, New York
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The Sansom Street Family consists of three classes of common stock of The
RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares ("Sansom Street Shares" or "Shares") of one of such classes (the "Sansom
Street Class" or "Class") are offered by this Prospectus and represent interests
in the Fund's Money Market Portfolio, (the "Portfolio").
The investment objective of the 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 PORTFOLIOS 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 Portfolios and
custodian for the Fund and PFPC Inc. serves as transfer and dividend disbursing
agent for the Fund.
Sansom Street Shares are sold by the Fund's distributor to customers
maintaining accounts with banks affiliated with PNC Bank Corp. (the "Banks").
Sansom Street Shares will be sold to customers, including individuals, trusts,
partnerships and corporations, who maintain accounts (such as custody, trust or
escrow accounts) with the Banks, and who have authorized the Banks to invest in
the Fund. Shares are sold and redeemed without any purchase or redemption charge
imposed by the Fund, although the Banks may receive compensation from the Fund
for services provided in connection with the purchase or redemption of shares.
See "Shareholder Servicing." Sansom Street Shares are also sold through any
broker that has entered into a dealer agreement with the Fund's Distributor.
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 free of charge by calling the Fund's distributor
at (800) 888-9723.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
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. Shares of the Class of the Fund offered by this
Prospectus represent interests in the Fund's Money Market Portfolio (the "Money
Market Portfolio" or the "Portfolio").
The investment objective of the 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 which
meet certain ratings criteria and which 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 Portfolio's investment adviser is PNC Institutional Management
Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank") serves as
sub-adviser to the Portfolio and as custodian to the Fund, and PFPC Inc.
("PFPC") serves as transfer and dividend disbursing agent to the Fund.
Counsellors Securities Inc. (the "Distributor") acts as distributor of the
Fund's shares.
An investment in the Portfolio is subject to certain risks, as set forth in
detail under "Investment Objectives and Policies." The Fund was created in 1988
and its investment portfolios commenced operations on or after September 30,
1988. 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
asset-backed 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 detailed information of how to purchase or redeem Sansom Street Shares,
please refer to the section of this Prospectus entitled "Purchase and Redemption
of Shares."
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (SANSOM STREET CLASS)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(3) MONEY MARKET
PORTFOLIO
------------
Management fees (after waivers)(1) ............................. .20%
12b-1 fees (after waivers)(1) .................................. .06
Other Expenses (after reimbursements)(2) ....................... .22
---
Total Fund Operating Expenses (Sansom Street Class)
(after waivers and reimbursements) .......................... .48%
===
(1) Management fees and 12b-1 fees are each based on average daily net assets
and are calculated daily and paid monthly.
(2) Includes for such Class a .10% shareholder servicing fee calculated based
upon the assets in the class attributable to bank clients.
(3) Before Expense Reimbursements and Waivers for the Money Market Portfolio,
Management fees would be .37%, 12b-1 fees would be .06%; OtherExpenses
would be .22% andTotalFund Operating Expenses would be .65%.
2
<PAGE>
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market* $5 $15 $27 $60
* 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
(Sansom Street Class) 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 Sansom Street Class 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," "Distribution of Shares" and "Shareholder Servicing" below.)
Expense figures are based on actual costs and fees charged to the class. The Fee
Table reflects a voluntary waiver of Management fees for each Portfolio.
However, there can be no assurance that any future waivers of Management fees
will not vary from the figure reflected in the Fee Table. In addition, the
investment adviser is currently voluntarily assuming additional expenses of the
Portfolio. There can be no assurance that the investment adviser will continue
to assume such expenses. Assumption of additional expenses will have the effect
of lowering a 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 the
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, operating expenses and market conditions. The
yield on shares of the Sansom Street Class will fluctuate and is not necessarily
representative of future results. Any fees charged by the Banks or
broker-dealers directly to their customers in connection with investments in the
Portfolio are not reflected in the yields on the Portfolio's shares, and such
fees, if charged, will reduce the actual return received by customers on their
investments. The yield on Shares of the Sansom Street 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 of the
classes of that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Sansom Street Class for the periods indicated. The financial data
included in this table for each of the periods ended August 31, 1992 through
August 31, 1996, are a part of the Fund's financial statements 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 statement. The financial data for such
Portfolio for the periods ended August 31, 1989, 1990 and 1991 are a part of
previous financial statements 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.
3
<PAGE>
SANSOM STREET CLASS
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment
operations:
Net investment income ...... 0.0518 0.0543 0.0334 0.0304
Net gains on securities
(both realized
and unrealized) .......... -- -- -- --
-------- -------- -------- --------
Total from investment
operations ........... 0.0518 0.0543 0.0334 0.0304
-------- -------- -------- --------
Less distributions
Dividends (from net
investment income) ....... (0.0518) (0.0543) (0.0334) (0.0304)
Distributions (from
capital gains) ........... -- -- -- --
-------- -------- -------- --------
Total distributions .... (0.0518) (0.0543) (0.0334) (0.0304)
-------- -------- -------- --------
Net asset value, end of
period ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return .................. 5.30% 5.57% 3.39% 3.08%
Ratios/Supplemental Data
Net assets, end of
period (000) ............. $524,359 $441,614 $373,745 $190,794
Ratios of expenses
to average net assets .... .48%(a) .39%(a) .39%(a) .34%(a)
Ratios of net investment
income to average
net assets ............... 5.18% 5.43% 3.34% 3.04%
</TABLE>
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1992 AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 1989
--------------- --------------- --------------- ------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment
operations:
Net investment income ...... 0.0435 0.0684 0.0810 0.0818
Net gains on securities
(both realized
and unrealized) .......... 0.0007 -- -- --
-------- -------- -------- --------
Total from investment
operations ........... 0.0442 0.0684 0.0810 0.0818
-------- -------- -------- --------
Less distributions
Dividends (from net
investment income) ....... (0.0435) (0.0684) (0.0810) (0.0818)
Distributions (from
capital gains) ........... (0.0007) -- -- --
-------- -------- -------- --------
Total distributions .... (0.0442) (0.0684) (0.0810) (0.0818)
-------- -------- -------- --------
Net asset value, end of
period ..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return .................. 4.51% 7.06% 8.40% 9.25%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) ............. $228,079 $138,418 $106,743 $ 79,656
Ratios of expenses
to average net assets .... .35%(a) .37%(a) .47%(a) .50%(a)(b)
Ratios of net investment
income to average
net assets ............... 4.35% 6.84% 8.10% 9.04%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60%,
.61%, .61% and .73% for the years ended August 31, 1996, 1995, 1994, 1993,
1992, 1991, and 1990, respectively, and .83% annualized for the period
ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Sansom Street Class of Shares
within the portfolio.
</FN>
</TABLE>
4
<PAGE>
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 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
("SAI"). The Portfolio may also purchase unrated commercial paper provided that
such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include instruments issued
by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is a U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there may be no active secondary market in the
notes, the Portfolio will be able (at any time or during 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
5
<PAGE>
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 and 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."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. At the time the
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Additional Investment Objectives and
Policies."
6
<PAGE>
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 general obligation of the issuing insurance company and not
a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
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 investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two highest rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs")
(e.g., commercial paper rated "A-1" or "A-2" by S&P), (3) securities that are
rated at the time of purchase by the only NRSRO rating the security in one of
its two highest rating categories for such securities, and (4) securities that
are not rated and are issued by an issuer that does not have comparable
obligations rated by an NRSRO ("Unrated Securities"), provided that such
securities are determined to be of comparable quality to eligible rated
securities. For a more complete description of eligible securities, see
"Investment Objectives and Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
ADDITIONAL INVESTMENT OBJECTIVES AND POLICIES
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MUNICIPAL OBLIGATIONS. The Portfolio may invest in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
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The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by the
Portfolio, the Portfolio may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding 397 calendar days, depending upon the instrument involved. The absence
of such an active secondary market, however, could make it difficult for the
Portfolio to dispose of a variable rate demand note if the issuer defaulted on
its payment obligation or during the periods that the Portfolio is not entitled
to exercise its demand rights. The Portfolio could, for this or other reasons,
suffer a loss to the extent of the default. The Portfolio invests in variable
rate demand notes only when the Portfolio's investment adviser deems the
investment to involve minimal credit risk. The Portfolio's investment adviser
also monitors the continuing creditworthiness of issuers of such notes to
determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should be aware of
the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
The Money Market Portfolio's investment objectives 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,
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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 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 (as
defined below). "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.
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PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
Sansom Street Shares are sold without a sales load on a continuous basis by
the Fund's Distributor. Purchase of Shares may be made through the Banks acting
on behalf of their customers, including individuals, trusts, partnerships and
corporations who maintain accounts (such as custody, trust or escrow accounts)
with the Banks and who have authorized the Bank to invest in the Fund on the
customer's behalf. Investors may also purchase shares through any broker that
has entered into a dealer agreement with the Fund's Distributor (a "Dealer").
The minimum initial investment by an investor is $1,500. There is no minimum
subsequent investment.
Purchases of Shares may be effected through the customer's accounts at the
Banks or investor accounts with the Dealer through procedures established in
connection with the requirements of accounts at the Banks or at such Dealer.
Confirmations of share purchases and redemptions will be sent to the Banks or
such Dealer. Beneficial ownership of Sansom Street Shares will be recorded by
the Banks or such Dealer and reflected in the account statements provided by
such Banks or by such Dealer to investors. If you wish to purchase Sansom Street
Shares, contact your Bank or the Dealer.
The Banks may also impose minimum customer account requirements. Although
the Banks do not impose a sales charge for purchases of Sansom Street Shares,
depending upon the terms of the particular customer account, the Banks may
charge the account fees for automatic investment and other cash management
services. Information concerning these minimum account requirements, services
and any charges will be provided by the Banks before the customer authorizes the
initial purchase of shares. This Prospectus should be read in conjunction with
any information received from the Banks. See "Shareholder Servicing."
The Portfolio is also available through Robertson Stephens, a registered
broker-dealer that has entered into a dealer Agreement with the Fund's
Distributor. For distribution services with respect to shares of the Portfolio
held by this firm, the Fund's Distributor, pays Robertson Stephens up to .25% of
the annual average value of such accounts. Purchases made through this program
does not require customers to pay a transaction fee.
DIRECT PURCHASES THROUGH A DEALER. An investor may make an initial
investment by mail by fully completing and signing an application obtained from
a Dealer (an "Application") and mailing it, together with a check payable to
"Sansom Street Money Market" c/o PFPC, P.O. Box 8950, Wilmington, Delaware
19899. An Application will be returned to the investor unless it contains the
name of the Dealer from whom it was obtained. Subsequent purchases may be made
through a Dealer or by forwarding payment to the Fund's transfer agent at the
foregoing address.
The Fund reserves the right to reject any purchase order.
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
receipt of the order and Federal Funds are available to the Fund. Purchase
orders received after its close of business are priced at the net asset value
next determined on the following Business Day. In those cases in which an
investor pays for Shares by check, Federal Funds will generally become available
two Business Days after the check is received. Purchase orders for Shares are
accepted only on days on which both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open ("Business Days").
Conflict of interest restrictions may apply to an institution's receipt of
compensation paid by the Fund in connection with the investment of fiduciary
funds in Sansom Street Shares. See "Shareholder Servicing." Institutions,
including banks regulated by the Comptroller of the Currency and investment
advisers and other money managers subject to the jurisdiction of the Securities
and Exchange Commission, the Department of Labor or state securities
commissions, are urged to consult their legal advisers before investing
fiduciary funds in Sansom Street Shares. See also "Management--Banking Laws."
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REDEMPTION OF SHARES
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. It is the responsibility of the Banks, or a broker-dealer that has
entered into a dealer Agreement with the Fund's Distributor to transmit promptly
to PFPC a customer's redemption request. In the case of shareholders holding
share certificates, the certificates must accompany the redemption request.
Investors may redeem all or some of their shares in accordance with one of the
procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT FOR BANK CUSTOMERS. A bank customer may
redeem all or part of his Sansom Street Shares in accordance with instructions
and limitations pertaining to his account at the Bank. Redemption orders are
effected at the net asset value per share determined after receipt of the order
by PFPC. Payment for redemption orders received by PFPC on a Business Day before
12:00 noon Eastern Time will be wired the same day in Federal Funds to the
customer's account at the Bank, 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. Payment for redemption orders which are received between 12:00
noon Eastern Time and 4:00 p.m. Eastern Time on a Business Day will be wired in
Federal Funds to the customer's account on the next bank business day following
receipt of the redemption request. No charge for wiring redemption payments is
imposed by the Fund, although the Banks may charge their customer accounts for
redemption services.
REDEMPTION OF SHARES IN AN ACCOUNT FOR NON-BANK CUSTOMERS. 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 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
banking 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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request to Sansom Street Money Market, c/o
PFPC, P.O. Box 8950, Wilmington, Delaware 19899. It is recommended that such
request be sent by registered or certified mail if share certificates accompany
the request. 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. 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). You may call the Transfer Agent at (800)
430-9618 to determine whether the entity that will guarantee the signature is an
eligible guarantor. Guarantees must be signed by an authorized signatory of the
bank, trust company or member firm and "Signature Guaranteed" must appear with
the signature.
Direct 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) 430-9618. 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 tele-
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phone 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.
Neither PFPC nor the Fund will be liable for any loss, liability, cost or
expense for following the procedures described below or for following
instructions communicated by telephone that it reasonably believes to be
genuine.
The Fund's telephone transaction procedures include the following measure:
(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 the 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 checkwriting privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker/dealer may establish a higher minimum. An investor
wishing to use this check writing redemption procedure should complete specimen
signature cards, and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own Shares
through an Account should contact their brokers for signature cards. Investors
with 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 the rules of the Investment Company Act of
1940 (the "1940 Act"), 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 cashed at
other banks.
OTHER REDEMPTION INFORMATION
The Fund ordinarily will make payment for all Shares redeemed within seven
days after receipt by the Fund's transfer agent of a request in proper form.
However, Shares purchased by check will not be redeemed for a period 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 the Shares are redeemed, dividends on such
Shares will accrue and be payable, and an investor will be entitled to exercise
all other rights of beneficial ownership.
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The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in the Sansom Street Class involuntarily, on thirty
days' notice, if such account drops below $500 and during such 30-day period the
shareholder does not increase such account 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.
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, President's Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed). The FRBis currently closed on weekends and the same holidays as the
NYSE is closed [except Christmas Day (observed)] as well as Martin LutherKing,
Jr. Day, Veterans Day andColumbus Day. The 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 the 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.
DISTRIBUTION OF SHARES
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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 for the Sansom Street Class of the Fund
pursuant to a distribution contract (the "Distribution Contract") with the Fund
on behalf of the Sansom Street Class. The Distributor pays for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Portfolio of the Fund as well
as for related direct mail, advertising expenses and promotional expenses. The
Distributor monitors the support services provided by the Banks as described in
"Shareholder Servicing" below.
The Board of Directors of the Fund approved and adopted the Distribution
Contract and separate Plan of Distribution for the Sansom Street Class (the
"Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the
Distributor is entitled to receive from the Sansom Street Class a distribution
fee, which is accrued daily and paid monthly, of up to .20% on an annualized
basis of the daily net assets of the Sansom Street Class. The actual amount of
such compensation under the Plan is agreed upon by the Fund's Board of Directors
and by 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 Sansom Street Class on any day to the extent
necessary to assure that the fee required to be accrued by such Class does not
exceed the income of such Class on that day. In addition, the Distributor may,
in its discretion, voluntarily waive from time to time all or any portion of its
distribution fee.
The Plan obligates the Fund, during the period it is in effect, to accrue
and pay to the Distributor on behalf of the Sansom Street Class the fee set
forth above. The Plan does not obligate the Fund to reimburse the Distributor
for the actual expenses the Distributor may incur in fulfilling its obligations
under the Plan on behalf of the Sansom Street
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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 Sansom Street Class.
Under the terms of Rule 12b-1, the Plan 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 Sansom
Street Class. The fee set forth above will be paid by the Fund on behalf of the
Sansom Street Class to the Distributor unless and until the Plan is terminated
or not renewed.
SHAREHOLDER SERVICING
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The Fund has and will continue to enter into service agreements with the
Banks pursuant to which the Banks will render certain support services to their
customers in consideration for payment of .10% (on an annualized basis) of the
average daily net asset value of such Shares. Such services may include
aggregating and processing purchase and redemption requests from their customers
and placing net purchase and redemption orders with PFPC; processing dividend
payments from the Fund on behalf of their customers; providing information
periodically to their customers showing their positions in the Sansom Street
Class; providing sub-accounting with respect to the Sansom Street Shares
beneficially owned by their customers or the information necessary for
sub-accounting; and providing certain statistical and factual information. In
accordance with the conditions of an exemptive order granted by the Securities
and Exchange Commission, each service agreement will provide that a Bank will
waive its servicing fee with respect to the Sansom Street Class on any day to
the extent necessary to assure that the servicing fee required to be accrued by
such Class does not exceed the income of such Class on that day. Their customers
who are beneficial owners of Sansom Street Shares should read this Prospectus in
light of the terms governing their accounts with the Banks.
MANAGEMENT
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BOARD OF DIRECTORS
The business and affairs of the Fund and each of its investment portfolios
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 Sansom Street Class represent interests in the 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 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. 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
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Portfolio's 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 by 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 the Portfolio's average daily net
assets: .45% of the first $250 million; .40% of the next $250 million; and .35%
of the average daily net assets of such Portfolio 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 net assets of the Money Market
Portfolio. For the same period PIMC waived approximately .17% of the average 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. 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 of shares of the
Fund, the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund, 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, shareholder servicing
payments, transfer agency expenses, expenses of preparing, printing and
distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse 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.
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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 the 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 .65% of average net assets with respect to the Sansom Street Class of the
Money Market Portfolio (not taking into account waivers and reimbursements of
.17%).
BANKING LAWS
Banking laws and regulations currently prohibit a bank holding company
registered under the Federal Bank Holding Company Act of 1956 or any bank or
non-bank affiliate thereof from sponsoring, organizing, controlling, or
distributing the shares of a registered, open-end investment company
continuously engaged in the issuance of its shares, and prohibit banks generally
from issuing, underwriting, selling or distributing securities, but such banking
laws and regulations do not prohibit such a holding company or affiliate or
banks generally from acting as investment adviser, transfer agent or custodian
to such an investment company, or from purchasing shares of such a company as
agent for and upon the order of such a customer. PNC Bank, PIMC, PFPC, as well
as the Banks, are subject to such banking laws and regulations. In addition,
state securities laws on this issue may differ from the interpretations of
Federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to state law.
Should future legislative, judicial or administrative action prohibit or
restrict the activities of Banks in connection with the provision of support
services to their customers, the Fund might be required to alter materially or
cause the Fund to discontinue its arrangements with Banks generally and change
its method of operations with respect to the Sansom Street Shares. It is not
anticipated, however, that any change in the Fund's method of operations would
affect its net asset value per share or result in a financial loss to any
Customer.
DIVIDENDS 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 Sansom Street 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 Portfolio 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
16
<PAGE>
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 currently 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 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.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
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 the 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 SANSOM STREET CLASS AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVES AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE SANSOM STREET CLASS.
Each share that represents an interest in the 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.
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<PAGE>
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 when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of 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.
The Fund will issue share certificates for any Sansom Street Shares only
upon the written request of a shareholder sent to PFPC.
OTHER INFORMATION
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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) 430-9618.
18
<PAGE>
ROBERTSON STEPHENS 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 "Sansom Street
Shares" or the "Shares") representing interests in the Money Market Portfolio
(the "Money Market Portfolio" or the "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 Prospectus of the Fund, dated
December 3, 1996 (the "Prospectus"). A copy of the Prospectus may be obtained by
calling the Fund's distributor toll-free at (800) 888-9723. This Statement of
Additional Information is dated December 3, 1996.
CONTENTS
Prospectus
Page Page
---- ----------
General........................................ 2 2
Investment Objectives and Policies............. 2 5
Directors and Officers ........................ 11 N/A
Investment Advisory, Distribution and Servicing
Arrangements ......................... 14 14
Portfolio Transactions ........................ 19 N/A
Purchase and Redemption Information ........... 20 10
Valuation of Shares ........................... 21 13
Taxes ......................................... 23 16
Additional Information Concerning
Fund Shares .......................... 28 17
Miscellaneous.................................. 30 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 pertaining to a
class of shares (the "Sansom Street Class" or the "Class") representing
interests in the Money Market Portfolio (the "Money Market Portfolio" or the
"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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio 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
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<PAGE>
instrument is an eligible security, the Portfolio's investment adviser
will follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio has firm commitments outstanding, such 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 Money Market Portfolio engages in when-issued transactions, it relies
on the seller to consummate the trade. Failure of the seller to do so may result
in such Portfolio 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, such Portfolio may pay for a
stand-by commitment either separately in cash or by paying a higher price for
portfolio securities which are acquired subject to the commitment (thus reducing
the yield to maturity otherwise available for the same securities). The total
amount paid in either manner for outstanding stand-by commitments held by either
such Portfolio will not exceed 1/2 of 1% of the value of such 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
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investment adviser's opinion, present minimal credit risks. Such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio 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 such Portfolio pays directly or
indirectly for a stand-by commitment, its cost will be reflected as an
unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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 typically not less than 5 years. Yields on pass-through
securities are
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<PAGE>
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.
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 "Prime-1" or "Prime-2" by Moody's) or (b) are rated
(at the time of purchase) by the only NRSRO rating the security in one of its
two highest rating categories for such securities; (3) short-term obligations
and long-term obligations that have remaining maturities of 397 calendar days or
less, provided in each instance that such obligations have no short-term rating
and are comparable in priority and security to a class of short-term obligations
of the issuer that has been rated in accordance with 2(a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, or (b) that are not unconditional, provided that the
demand feature satisfies (2), (3) or (4) above, and the demand instrument or
long-term obligations of the issuer
-6-
<PAGE>
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. 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 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 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
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<PAGE>
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 or hypothecate any of its assets except
in connection with such borrowing, and then in amounts not in excess
of 10% of the value of a Portfolio's total assets at the time of the
borrowing and in amounts not in excess of the lesser of the dollar
amounts borrowed or 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;
(4) underwrite securities of other issuers, except
to the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
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<PAGE>
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 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
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<PAGE>
(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, the Portfolio will consider wholly-owned finance companies to be
in the industries of their parents if their activities are primarily related to
financing the activities of the parents, and will divide utility companies
according to their services. For example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry. The
policy and practices stated in this paragraph may be changed without the
affirmative vote of the holders of a majority of the affected Money Market
Portfolio's outstanding shares, but any such change may require the approval of
the Securities and Exchange Commission and would be disclosed in the Sansom
Street Class 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 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.
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<PAGE>
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.
--------------------
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 Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky-58** Director Since OCTOBER 1996, SENIOR
110 Wall Street VICE PRESIDENT OF
New York, NY 10005 FAHNESTOCK & CO., INC.
1985 TO 1996, Executive
Vice President of
Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc.
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.)
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<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ -------------------------
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, Inc.)
(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 Chairman, 1969 to
16th Floor present, Comcast
Philadelphia, PA Corporation; Director,
19107-3723 Comcast Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (Wireless
Communications).
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
Insurance Co.
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<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ -------------------------
Edward J. Roach- 72 President and Treasurer Certified Public
Suite 100 Accountant; Vice
Bellevue Park Chairman of the
Corporate Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19808 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management Corporation.
Morgan R. Jones- 57 Secretary Chairman, the law
1100 PNB Bank Building firm of Drinker
Broad and Chestnut Sts Biddle and Reath,
Philadelphia, PA 19107 Philadelphia,
Pennsylvania; Director,
Rocking Horse Child Care
Centers of America, Inc.
- --------------
* 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, and his position as President
of the Fund.
** 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
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<PAGE>
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 Portfolio's sub-ADVISER and the Fund's custodian,
PFPC Inc. ("PFPC"), and the Fund's transfer and dividend disbursing agent, and
Counsellors Securities Inc. (the "Distributor"), the Fund's distributor, the
Fund itself requires only one part-time employee. No officer, director or
employee of PIMC, PNC Bank, PFPC or the Distributor currently receives any
compensation from the Fund.
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 Money Market Portfolio pursuant to an investment advisory
agreement. The advisory agreement relating to the Money Market Portfolio is
dated August 16, 1988. PNC Bank renders sub-advisory services to the Portfolio
pursuant to a sub-advisory agreement, dated August 16, 1988. The advisory and
sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Contracts."
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<PAGE>
For the year ended August 31, 1996, PIMC received (after
waivers) $4,174,375 and waived $3,527,715 of advisory fees with respect to the
Portfolio. For the year ended August 31, 1995, PIMC received (after waivers)
$2,274,697 in advisory fees and waived $2,589,882 of advisory fees with respect
to the Portfolio. For the year ended August 31, 1994 , PIMC received (after
waivers) $1,947,768 in advisory fees and waived $2,255,986 of advisory fees with
respect to the Portfolio.
As required by various state regulations, PIMC will reimburse
the Fund or a portfolio of the Fund 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 of the Fund 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
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
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<PAGE>
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, service organization payments,
transfer agency expenses, 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 the 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 CONTRACT WAS 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 by the shareholders of the
Money Market 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. Each of the Advisory Contracts may also be terminated by PIMC
or PNC Bank, respectively, on 60 days' written notice to the Fund. Each of the
Advisory Contracts terminates automatically in the event of assignment thereof.
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 the 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
-16-
<PAGE>
$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 Sansom Street Shares pursuant to a
Transfer Agency Agreement dated August 16, 1988 (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems shares of the Sansom Street
Class, (b) addresses and mails all communications by the Sansom Street Class to
record owners of shares of each such Class, including reports to shareholders,
dividend and distribution notices and proxy materials for its meetings of
shareholders, (c) maintains shareholder accounts and, if requested, sub-accounts
and (d) makes periodic reports to the Fund's Board of Directors concerning the
operations of the Sansom Street 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 placed via third parties and relayed electronically
to PFPC, and $17.00 per account in the Portfolio for all other orders, exclusive
of out-of-pocket expenses and also receives reimbursement of its out-of-pocket
expenses.
DISTRIBUTION AND SERVICING AGREEMENTS. Pursuant to the terms
of a distribution agreement, dated as of April 10, 1991, and supplement entered
into by the Distributor and the Fund on behalf of the Sansom Street Class (the
"Distribution Contract"), and the Plan of Distribution for the Sansom Street
Class (the "Plan"), both of which were adopted by the Fund in the manner
prescribed by Rule 12b-1 under the 1940 Act, the Distributor will use its best
efforts to distribute shares of the Sansom Street 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 Plan as amended was most recently approved for
continuation 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 also approved by the
shareholders of the respective Sansom Street 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 Sansom Street Class under the Plan shall not be materially
increased without the affirmative vote of the holders of a majority
-17-
<PAGE>
of the Fund's shares of the affected Sansom Street 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 Sansom Street
Class of the Money Market Portfolio in the aggregate amount of $316,107, of that
amount $83,056 was paid to Robertson Stephens and $233,051 was retained by the
Fund's Distributor and used to pay certain advertising and promotion, printing,
postage, legal fees, travel and entertainment, sales and marketing and
administrative expenses. The Fund believes that the 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.
As stated in the Prospectus for the Sansom Street Class, the
Fund has entered into agreements with banks that are affiliated with PNC
Financial Corp (the "Banks") that are record holders of Shares of the Sansom
Street Class pertaining to the provision of support services to the Banks'
customers who are the beneficial owners of Shares of the Sansom Street Class in
consideration of the Fund's payment of .10% (on an annualized basis) of the net
asset value of such customers' Shares. Such services include: (i) aggregating
and processing purchase and redemption requests from their customers and placing
net purchase and redemption orders with the PFPC; (ii) periodically providing
their customers information showing their positions in shares; (iii) processing
dividend payments from the Fund on behalf of their customers; (iv) arranging for
bank wires; (v) responding to their customer inquiries relating to the services
performed by the service organization; (vi) providing sub-accounting with
respect to shares of the Sansom Street Class beneficially owned by their
customers or the information necessary for sub-accounting; (vii) forwarding
shareholder communications from the Fund (such as proxies, shareholder reports,
annual and semi-annual financial statements and dividend, distribution and tax
notices) to their customers, if required by law; and (viii) other similar
services if requested by the Fund. The Banks also agree to maintain records
relating to transactions in shares of the Sansom Street Class, and to provide
the Fund with such statistical and factual information as the Fund may request.
Agreements between the Fund and the Banks are terminable at any time by the Fund
without penalty. The Distributor will monitor the support services provided by
the Banks under such agreements.
During the year ended August 31, 1996, THE FUND PAID FEES TO
BANKS UNDER THE RELEVANT AGREEMENT FOR THE SANSOM STREET CLASS OF THE MONEY
MARKET PORTFOLIO IN THE AMOUNT OF $471,499. DURING THE YEAR ENDED AUGUST 31,
1995, the Fund paid fees to Banks under the relevant agreement for the Sansom
Street Class of the Money Market Portfolio in the amount of $391,361. During the
year ended August 31, 1994, the Fund paid fees to Banks under the agreement for
the Sansom Street Class of the Money Market Portfolio in the amount of $311,525.
PORTFOLIO TRANSACTIONS
The Portfolio intends to purchase only 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 intends to purchase only securities with
remaining maturities of 397 calendar days or less, its portfolio turnover rate
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 does not 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 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),
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<PAGE>
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 a
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 the 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 recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
A shareholder of record may be required by the Fund's Board of
Directors to redeem shares in the Class if the balance in such shareholder's
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account drops below $500 and the shareholder does not increase its balance to at
least $500 upon 30 days' written notice. If a Customer has agreed with a
particular Bank to maintain a minimum balance in his account, and the balance in
the Bank account falls below that minimum, the Customer may be obliged to redeem
all or part of his shares in the Portfolio to the extent necessary to maintain
the minimum balance required.
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 WEEKENDS AND 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.
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
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prior to maturity, reducing or withholding dividends, and utilizing a net asset
value per share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity greater than 397 calendar days under Rule 2a-7 of the 1940 Act,
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 record
keeping 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 ended August 31, 1996
for the Sansom Street Class of the Money Market Portfolio was 5.00%. The
effective yield for the same period for the same class was 5.12%.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yield of the Portfolio will fluctuate, it
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
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to each fund's investment policies, including the types of investments made,
lengths of maturities of a portfolio securities, the method used by each fund to
compute the yield (methods may differ) and whether there are any special account
charges which may reduce the effective yield.
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 Investors
Service, Inc. and Standard & Poor's Corporation 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 the
Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yield 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(R) of Holliston, MA 01746, a widely recognized independent
service 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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<PAGE>
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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<PAGE>
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 it 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) 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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<PAGE>
While the Portfolio does not 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 net long-term 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 capital gain and ordinary income distributions. The nominal
maximum marginal rate on ordinary income for individuals, trusts and estates is
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 marginal rate to exceed
31%. The maximum rate on the net capital gain of individuals, trusts and
estates, however, is in all cases 28%. Capital gains and ordinary income of
corporate taxpayers are taxed at a nominal 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 one-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, 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 COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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 AS CLASS SS COMMON STOCK
(BOSTON PARTNERS ADVISORS LARGE CAP), 700 MILLION SHARES ARE CLASSIFIED AS CLASS
JANNEY
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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 I Stock constitute the Samson Street Family. 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, N/I
FAMILY, 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 Cash Preservation Family represents interests in the
Money Market and Municipal Money Market Portfolios; the Bedford Family
represents interests in the Money Market, Municipal Money Market, Government
Obligations Money Market and New York Municipal Money Market Portfolios; the
Bradford Family represents interests in
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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 INTERESTS IN ONE NON-MONEY MARKET PORTFOLIO; the
Janney Montgomery Scott Money Funds Family and Beta, Gamma, Delta, 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).
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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. 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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market Janney Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
JANNEY Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Janney Montgomery Scott Government Janney Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT OBLIGATIONS Philadelphia, PA 19103-1675
MONEY)
JANNEY Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
-38-
<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 a
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 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.
DESCRIPTION OF MUNICIPAL NOTES RATINGS
The rating SP-1 is the highest rating assigned by Standard &
Poor's to municipal notes and indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of
the best quality, enjoying strong protection by established cash flows, superior
A-1
<PAGE>
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
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
Investment Income
Interest .................................. $118,092,977
------------
Expenses
Investment advisory fees .................. 7,702,090
Distribution fees ......................... 9,304,376
Service organization fees ................. 471,499
Directors' fees ........................... 38,473
Custodian fees ............................ 345,973
Transfer agent fees ....................... 3,044,149
Legal fees ................................ 77,139
Audit fees ................................ 61,049
Registration fees ......................... 434,000
Insurance expense ......................... 43,932
Printing fees ............................. 426,220
Miscellaneous ............................. 1,884
------------
21,950,784
Less fees waived .......................... (3,543,632)
Less expense reimbursement
by advisor .............................. (342,158)
------------
Total expenses ....................... 18,064,994
------------
Net investment income ..................... 100,027,983
------------
Realized loss on investments .............. (12,987)
------------
Net increase in net assets
resulting from operations ............... $100,014,996
=============
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
Increase (decrease) in net assets:
Operations:
Net investment income .................... $ 100,027,983 $ 64,913,329
Net loss on investments .................. (12,987) (18,463)
-------------- -------------
Net increase in net assets
resulting from operations .............. 100,014,996 64,894,866
-------------- -------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ......................... (49,874,649) (38,765,552)
Cash Preservation shares ............... (10,092) (11,336)
Janney Montgomery Scott shares ......... (24,434,566) (4,784,092)
RBB shares ............................. (2,630) (2,530)
Sansom Street shares ................... (25,706,046) (21,349,819)
-------------- --------------
Total distributions
to shareholders .................... (100,027,983) (64,913,329)
-------------- --------------
Net capital share transactions ............. 374,464,737 736,630,198
-------------- --------------
Total increase in net assets ............... 374,451,750 736,611,735
Net Assets:
Beginning of year ........................ 1,821,371,688 1,084,759,953
-------------- --------------
End of year .............................. $2,195,823,438 $1,821,371,688
============== ==============
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- --------
Income from investment operations:
Net investment income ............ 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities
(both realized and unrealized) .. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net
investment income) ............. (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from
capital gains) ................. -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ............ (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ....................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year .......... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average
net assets ..................... .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income
to average net assets ........... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial highlights relate soley to the Sansom Street Class of shares
within the portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family, and the Bradford Family.
The Sansom Street Family represents interests in the Money Market Portfolio,
which is covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Portfolio seeks to maintain net asset value
per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumption that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly owned subsidiary of PNC Asset Management Group,
Inc., which is in turn a wholly-owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment advisor for the portfolio
described herein. PNC Bank serves as the sub-advisor for the Money Market
Portfolio.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on the portfolio's average daily net
assets:
.45% of first $250 million of net assets;
.40% of next $250 million of net assets;
.35% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for this portfolio. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
investment portfolio were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
-------------- -------------- --------------
$7,702,090 $(3,527,715) $4,174,375
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolio. In addition, PNC Bank serves as custodian for the Fund's portfolios.
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp.,
serves as each class's transfer and dividend disbursing agent.
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the investment
portfolio were as follows:
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- -------------- ---------------
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery
Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total $3,044,149 $(15,917) $3,028,232
========== ======== ===========
The Fund, on behalf of each class of shares within this investment
portfolio, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Cash Preservation, Janney
Montgomery Scott and RBB Classes and up to .20% on an annualized basis for the
Sansom Street Class.
11
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31, 1996, distribution fees for each class were
as follows:
DISTRIBUTION
FEE
------------
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
----------
Total $9,304,376
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996 service
organization fees were $471,499 for the Money Market Portfolio.
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
MONEY MARKET PORTFOLIO
--------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277
Cash Preservation Class 122,344 84,527
Janney Montgomery Scott Class 2,359,936,867 855,058,809
RBB Class 584,206 31,504
Sansom Street Class 2,191,596,362 1,864,628,110
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204
Cash Preservation Class 10,084 11,226
Janney Montgomery Scott Class 24,077,173 4,534,944
RBB Class 2,625 2,500
Sansom Street Class 18,389,361 16,689,941
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052)
Cash Preservation Class (165,733) (91,268)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656)
RBB Class (580,821) (23,917)
Sansom Street Class (2,127,237,313) (1,813,444,951)
--------------- ---------------
Net increase $ 374,464,737 $ 736,630,198
=============== ===============
Sansom Street Shares authorized 1,000,000,000 1,000,000,000
=============== ===============
12
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
Capital paid-in:
Bedford Class $1,109,351,734
Cash Preservation Class 202,360
Janney Montgomery Scott Class 561,873,247
RBB Class 61,412
Sansom Street Class 524,367,399
Other Classes 800
Accumulated net realized gain (loss)
on investments
Bedford Class (17,400)
Cash Preservation Class (3)
Janney Montgomery Scott Class (7,821)
RBB Class (1)
Sansom Street Class (8,289)
--------------
$2,195,823,438
==============
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, $33,513 capital loss carryovers were available to
offset future realized gains of which $2,062 expires in 2002, $18,464 expires in
2003 and $12,987 expires in 2004.
13
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interest in the Money Market Portfolio: Bedford, Cash Preservation, Janney
Montgomery Scott and RBB. Each class is marketed to different types of
investors. Financial Highlights of the RBB and Cash Preservation classes are not
presented in this report due to their immateriality. Such information is
available in the annual reports of each respective family. The financial
highlights of certain of the other classes are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ............ 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ........ -- -- -- -- 0.0007
---------- ---------- ---------- ---------- ----------
Total from investment
operations ................... 0.0469 0.0486 0.0278 0.0243 0.0382
---------- ---------- ---------- ---------- ----------
Less distributions
Dividends (from net
investment income) .............. (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from
capital gains) .................. -- -- -- -- (0.0007)
---------- ---------- ---------- ---------- ----------
Total distributions ........... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return ....................... 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) .... $1,109,334 $ 935,821 $ 710,737 $ 782,153 $ 736,842
Ratios of expenses to average
net assets ...................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets ........... 4.69% 4.86% 2.78% 2.43% 3.75%
<FN>
(a) Without the waiver of advisory and 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%,
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
14
<PAGE>
THE SANSOM STREET FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31,1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
MONEY MARKET PORTFOLIO
-----------------------------------
FOR THE PERIOD
FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ----------------
Net asset value,
beginning of period .................. $ 1.00 $ 1.00
-------- --------
Income from investment
operations:
Net investment income ................ 0.0465 0.0112
-------- --------
Total from investment
operations ....................... 0.0465 0.0112
-------- --------
Less distributions
Dividends (from net
investment income) ................... (0.0465) (0.0112)
-------- --------
Total distributions ................ (0.0465) (0.0112)
-------- --------
Net asset value, end of period ......... $ 1.00 $ 1.00
======== ========
Total Return ........................... 4.76% 5.30%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ...... $561,865 $443,645
Ratios of expenses to
average net assets ................. 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to
average net assets ................. 4.65% 5.04%(b)
(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 1.23% for the year ended
August 31, 1996 and 1.23% annualized for the period ended August 31, 1995.
(b) Annualized.
15
<PAGE>
===================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
- ---------------------------------------------------
TABLE OF CONTENTS
PAGE
Fee Table .................................. 2
Financial Highlights ....................... 3
Investment Objectives and Policies ......... 8
Investment Limitations ..................... 17
Purchase and Redemption of Shares .......... 19
Net Asset Value ............................ 23
Management ................................. 23
Distribution of Shares ..................... 26
Dividends and Distributions ................ 27
Taxes ...................................... 27
Description of Shares ...................... 28
Other Information .......................... 29
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
===================================================
<PAGE>
THE BEDFORD FAMILY
OF
THE RBB FUND, INC.
The Bedford Family consists of four classes of common stock of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company incorporated
under the laws of the State of Maryland on February 29, 1988 and is currently
operating or proposing to operate nineteen separate investment portfolios. The
shares of such classes (collectively, the "Bedford Shares" or "Shares") offered
by this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions
of the United States, the District of Columbia and their political
subdivisions, agencies, instrumentalities and authorities. During periods
of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations the interest on which
is exempt from the regular Federal income tax but which may constitute an
item of tax preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to provide as high a
level of current interest income as is consistent with maintaining
liquidity and stability of principal. It seeks to achieve such objective by
investing in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level
of current income that is exempt from Federal, New York State and New York
City personal income taxes as is consistent with preservation of capital
and liquidity. It seeks to achieve its objective by investing primarily in
Municipal Obligations, the interest on which is exempt from the regular
Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax ("Tax-Exempt Interest") and is exempt from
New York State and New York City personal income taxes and which meet
certain ratings criteria and present minimal credit risks.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
An investor may purchase and redeem Shares of any of the Bedford Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
PNC Institutional Management Corporation ("PIMC") serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC Bank") serves as
sub-adviser for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-adviser, and serves as custodian for the Fund, PFPC
Inc. ("PFPC") serves as administrator of the Municipal Money Market and New York
Municipal Money Market Portfolios and the transfer and dividend disbursing agent
for the Fund. Counsellors Securities Inc. (the "Distributor") acts as
distributor for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after waivers)(1) ........... .20% .05% .30% 0%
12b-1 fees (after waivers)(1) ................ .55 .55 .57 .51
Other Expenses (after reimbursements) ........ .22 .24 .105 .27
---- ---- ---- ----
Total Fund Operating Expenses
(Bedford Classes) (after waivers
and reimbursements) ....................... .97% .84% .975% .78%
==== ==== ==== ====
<FN>
(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,
Municipal Money Market Portfolio, Government Obligations Money Market Portfolio
and New York Municipal Money Market Portfolio, Management fees would be .37%,
.33%, .42% and .35%, respectively; 12b-1 fees would be .55%, .55%, .57% and
.51%, respectively; Other Expenses would be .22%, .24%, .11% and .28%,
respetively and Total Fund Operating Expenses would be 1.14%, 1.12%, 1.10% and
1.14%, respectively.
</FN>
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market* $10 $31 $54 $119
Municipal Money Market* $ 9 $27 $47 $104
Government Obligations Money Market* $10 $31 $54 $120
New York Municipal Money Market $ 8 $25 $43 $ 97
<FN>
* Other classes of these Portfolios are sold with different fees and expenses.
</FN>
</TABLE>
The Example in the Fee Table assumes that all dividends and distributions
are reinvested and that the amounts listed under "Annual Fund Operating Expenses
(Bedford Classes) 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 Bedford Classes 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.) Expense figures are based on actual costs and
fees charged to each class. The Fee Table reflects a voluntary waiver of
Management fees for each Portfolio. However, there can be no assurance that any
future waivers of Management fees will not vary from the figure reflected in the
Fee Table. In addition, the investment adviser
2
<PAGE>
is currently voluntarily assuming additional expenses of one of the Portfolios.
There can be no assurance that the investment adviser will continue to assume
such expenses. Assumption of additional expenses will have the effect of
lowering a Portfolio's overall expense ratio and increasing its yield to
investors.
From time to time a Portfolio advertises its "yield" and "effective yield."
BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers to the income
generated by an investment in a Portfolio over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Each of the Municipal Money
Market Portfolio's and the New York Municipal Money Market Portfolio's
"tax-equivalent yield" may also be quoted from time to time, which shows the
level of taxable yield needed to produce an after-tax equivalent to such
Portfolio's tax-free yield. This is done by increasing the Municipal Money
Market Portfolio's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate and by increasing
the New York Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal, New York State and New
York City personal income taxes at stated rates.
The yield of any investment is generally a function of portfolio quality
and maturity, type of investment and operating expenses. The yield on Shares of
any of the Bedford Classes 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 the Bedford Classes are not
reflected in the yields of the Bedford Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
yield on Shares of the Bedford Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Bedford Classes representing interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios for the periods indicated. The financial data
included in this table for each of the periods ended August 31, 1992 through
August 31, 1996 are a part of the Fund's financial statements for each of such
Portfolios 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 each such Portfolio for the periods ended August 31, 1989, 1990 and
1991 are a part of previous financial statements audited by Coopers & Lybrand
L.L.P. The financial data included in this table should be read in conjunction
with the financial statements and related notes included in the Statement of
Additional Information.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment operations:
Net investment income ............... 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized ) ......... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations .................... 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................... (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital
gains) ............................ -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions ............. (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return ........................... 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios/Supplemental Data
Net assets, end of period (000) ..... $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets ........................ .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income to
average net assets ................ 4.69% 4.86% 2.78% 2.43% 3.75%
MONEY MARKET PORTFOLIO
----------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 1989
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of period ................. $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations:
Net investment income ............... 0.0629 0.0765 0.0779
Net gains on securities (both
realized and unrealized ) ......... -- -- --
-------- -------- --------
Total from investment
operations .................... 0.0629 0.0765 0.0779
-------- -------- --------
Less distributions
Dividends (from net investment
income) ........................... (0.0629) (0.0765) (0.0779)
Distributions (from capital
gains) ............................ -- -- --
-------- -------- --------
Total distributions ............. (0.0629) (0.0765) (0.0779)
-------- -------- --------
Net asset value, end of period ......... $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return ........................... 6.48% 7.92% 8.81%(b)
Ratios/Supplemental Data
Net assets, end of period (000) ..... $747,530 $709,757 $152,311
Ratios of expenses to average
net assets ........................ .92%(a) .92%(a) .93%(a)(b)
Ratios of net investment income to
average net assets ................ 6.29% 7.65% 8.61%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
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 Bedford Class of shares within
the portfolio.
[/FN]
</TABLE>
4
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ............. 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized ) ....... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ......................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital
gains) .......................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ........... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of period ....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ......................... 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios/Supplemental Data
Net assets, end of period (000) ... $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets ...................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income to
average net assets .............. 2.88% 2.97% 1.95% 1.95% 2.87%
MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 1989
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of period ................ $ 1.00 $ 1.00 $ 1.00
-------- -------- -------
Income from investment operations:
Net investment income ............. 0.0431 0.0522 0.0513
Net gains on securities (both
realized and unrealized ) ....... -- -- --
-------- -------- -------
Total from investment
operations .................. 0.0431 0.0522 0.0513
-------- -------- -------
Less distributions
Dividends (from net investment
income) ......................... (0.0431) (0.0522) (0.0513)
Distributions (from capital
gains) .......................... -- -- --
-------- -------- -------
Total distributions ........... (0.0431) (0.0522) (0.0513)
-------- -------- -------
Net asset value, end of period ....... $ 1.00 $ 1.00 $ 1.00
======== ======== =======
Total Return ......................... 4.40% 5.35% 5.72%(b)
Ratios/Supplemental Data
Net assets, end of period (000) ... $215,140 $195,566 $85,806
Ratios of expenses to average
net assets ...................... .74%(a) .75%(a) .73%(a)(b)
Ratios of net investment income to
average net assets .............. 4.31% 5.22% 5.70%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Municipal Money Market Portfolio would have been 1.12%, 1.14%,
1.12%, 1.16%, 1.15%, 1.13% and 1.14% 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 Bedford Class of shares within
the portfolio.
[/FN]
</TABLE>
5
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .............. 0.0458 0.0475 0.0270 0.0231 0.0375
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment
operations ................... 0.0458 0.0475 0.0270 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ......................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from
capital gains) ................... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions ............. (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value, end of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .......................... 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios/Supplemental Data
Net assets, end of period (000) .... $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average
net assets ....................... .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income
to average net assets ............ 4.58% 4.75% 2.70% 2.31% 3.75%
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
----------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1991 AUGUST 31, 1990 AUGUST 31, 1989
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value,
beginning of period ................ $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations:
Net investment income .............. 0.0604 0.0748 0.0725
Net gains on securities (both
realized and unrealized) ......... -- -- --
-------- -------- --------
Total from investment
operations ................... 0.0604 0.0748 0.0725
-------- -------- --------
Less distributions
Dividends (from net investment
income) ......................... (0.0604) (0.0748) (0.0725)
Distributions (from
capital gains) ................... -- -- --
-------- -------- --------
Total distributions ............. (0.0604) (0.0748) (0.0725)
-------- -------- --------
Net asset value, end of period ........ $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return .......................... 6.21% 7.74% 8.64%(b)
Ratios/Supplemental Data
Net assets, end of period (000) .... $368,899 $209,378 $ 66,281
Ratios of expenses to average
net assets ....................... .95%(a) .95%(a) .96%(a)(b)
Ratios of net investment income
to average net assets ............ 6.04% 7.48% 8.34%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Government Obligations Money Market Portfolio would have been
1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17% for the years ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991, and 1990, respectively, and
1.40% annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within
the portfolio.
</FN>
</TABLE>
6
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------
FOR THE PERIOD
JULY 13, 1990
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST31, 1994 AUGUST 31, 1993
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Income from investment operations:
Net investment income ....................... 0.0278 0.0290 0.0198 0.0234
Net gains on securities (both realized
and unrealized) ........................... -- -- -- --
-------- -------- -------- --------
Total from investment operations ........ 0.0278 0.0290 0.0198 0.0234
-------- -------- -------- --------
Less distributions
Dividends (from net investment income) ...... (0.0278) (0.0290) (0.0198) (0.0234)
Distributions (from capital gains) .......... -- -- -- --
-------- -------- -------- --------
Total distributions ..................... (0.0278) (0.0290) (0.0198) (0.0234)
-------- -------- -------- --------
Net asset value, end of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total Return ................................... 2.83% 2.94% 2.00% 2.37%
Ratios/Supplemental Data
Net assets, end of period (000) ............. $ 68,116 $ 60,330 $ 52,222 $ 55,677
Ratios of expenses to average net assets .... .78%(a) .76%(a) .50%(a) .14%(a)
Ratios of net investment income to average
net assets ................................ 2.78% 2.90% 1.98% 2.34%
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------------------------
FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1992 AUGUST 31, 1991 AUGUST 31, 1990
--------------- --------------- ---------------
<S> <C> <C> <C>
Net asset value, beginning of period ........... $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
Income from investment operations:
Net investment income ....................... 0.0300 0.0369 0.0060
Net gains on securities (both realized
and unrealized) ........................... -- -- --
-------- -------- --------
Total from investment operations ........ 0.0300 0.0369 0.0060
-------- -------- --------
Less distributions
Dividends (from net investment income) ...... (0.0300) (0.0369) (0.0060)
Distributions (from capital gains) .......... -- -- --
-------- -------- --------
Total distributions ..................... (0.0300) (0.0369) (0.0060)
-------- -------- --------
Net asset value, end of period ................. $ 1.00 $ 1.00 $ 1.00
======== ======== ========
Total Return ................................... 3.04% 3.76% 4.50%(b)
Ratios/Supplemental Data
Net assets, end of period (000) ............. $ 40,751 $ 34,183 $ 35,662
Ratios of expenses to average net assets .... .33%(a) .89%(a) .95%(a)(b)
Ratios of net investment income to average
net assets ................................ 3.00% 3.69% 4.41%(b)
<FN>
(a) Without the waiver of advisory, distribution and administration fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets for the New York Municipal Money Market
Portfolio would have been 1.14%, 1.22%, 1.20%, 1.20%, 1.22% and 1.25% for
the years ended August 31, 1996, 1995, 1994, 1993, 1992 and 1991,
respectively, and 1.14% annualized for the period ended August 31, 1990.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within
the portfolio.
</FN>
</TABLE>
7
<PAGE>
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 symbols are
described in the Appendix to the Statement of Additional Information. The
Portfolio may also purchase unrated commercial paper provided that such paper is
determined to be of comparable quality by the Portfolio's investment adviser in
accordance with guidelines approved by the Fund's Board of Directors. Commercial
paper issues in which the Portfolio may invest include securities issued by
corporations without registration under the Securities Act of 1933 (the "1933
Act") in reliance on the exemption from such registration afforded by Section
3(a)(3) thereof, and commercial paper issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted as
to disposition under the Federal securities laws in that any resale must
similarly be made in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include instruments issued
by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there may be no active secondary market in the
notes, the Portfolio will be able (at any time or during the specified periods
not exceeding 397 calendar days, depending upon the note involved) to demand
payment of the principal of a note. The notes are not typically rated by credit
rating agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
8
<PAGE>
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".
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. At the time the
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively, "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and Policies --
Municipal Money Market Portfolio -- Municipal Obligations."
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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 investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two (2) highest rating categories
by one or more nationally recognized statistical rating organizations ("NRSROs")
(e.g., commercial paper rated "A-1" or "A-2" by S&P), (3) securities that are
rated at the time of purchase by the only NRSRO rating the security in one of
its two highest rating categories for such securities, and (4) securities that
are not rated and are issued by an issuer that does not have comparable
obligations rated by an NRSRO ("Unrated Securities"), provided that such
securities are determined to be of comparable quality to eligible rated
securities. For a more complete description of eligible securities, see
"Investment Objectives and Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be invested in Municipal Obligations. Municipal Obligations
include securities the interest on which is Tax-Exempt Interest, although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Interest").
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MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal Obligations
which are determined by the Portfolio's investment adviser to present minimal
credit risks and that meet certain ratings criteria pursuant to guidelines
established by the Fund's Board of Directors. The Portfolio may also purchase
Unrated Securities provided that such securities are determined to be of
comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by a
Portfolio, the Portfolio may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding 397 calendar days, depending upon the instrument involved. The absence
of such an active secondary market, however, could make it difficult for the
Portfolio to dispose of a variable rate demand note if the issuer defaulted on
its payment obligation or during the periods that the Portfolio is not entitled
to exercise its demand rights. The Portfolio could, for this or other reasons,
suffer a loss to the extent of the default. The Portfolio invests in variable
rate demand notes only when the Portfolio's investment adviser deems the
investment to involve minimal credit risk. The Portfolio's investment adviser
also monitors the continuing creditworthiness of issuers of such notes to
determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
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<PAGE>
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-by
Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio
- --Eligible Securities."
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see, "Investment Objectives and Policies--Money Market
Portfolio--Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
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<PAGE>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or instrumentalities only when the investment adviser believes
that the credit risk with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns Bedford
Shares representing an interest in the Portfolio. Certain government securities
held by the Portfolio may have remaining maturities exceeding 397 calendar days
if such securities provide for adjustments in their interest rates not less
frequently than every 397 calendar days and the adjustments are sufficient to
cause the securities to have market values, after adjustment, which approximate
their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-related securities."
Mortgage-related securities may include asset-backed securities which are
backed by mortgages, installment sales contracts, credit card receivables or
other assets and collateralized mortgage obligations ("CMOs") issued or
guaranteed by U.S. Government agencies and instrumentalities or issued by
private companies. Purchasable mortgage-related securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less.
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<PAGE>
One such type of mortgage-related security in which the Portfolio may
invest is a Government National Mortgage Association ("GNMA") Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments on FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Portfolio may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but, like a
FNMA security, it is not guaranteed by the full faith and credit of the U.S.
Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as the Portfolio), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as twenty or thirty years, the borrowers
can, and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. This means that, in times of
declining interest rates, some of the Portfolio's higher yielding securities
might be repaid and thereby converted to cash and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase additional
securities. The Portfolio normally will not distribute principal payments
(whether regular or prepaid) to its shareholders. Interest received by the
Portfolio will, however, be distributed to shareholders in the form of
dividends.
To compare the prepayment risk for various mortgage-related securities,
various independent mortgage-related securities dealers publish average
remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when it believes that the price of security may decline, causing
a decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for Federal income tax purposes and for certain
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-
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<PAGE>
custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. A more detailed discussion of short sales is contained in
the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities see "Investment Objectives and Policies--Money market
Portfolio--Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from Federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria and present minimal credit risks to the Portfolio. Portfolio
obligations held by the New York Municipal Money Market Portfolio will have
remaining maturities of 397 calendar days or less ("short-term" obligations).
Dividends paid by the Portfolio which are derived from interest attributable to
tax-exempt obligations of the State of New York and its political subdivisions,
as well as of certain other governmental issuers such as Puerto Rico ("New York
Municipal Obligations"), will be excluded from gross income for Federal income
tax purposes and exempt from New York State and New York City personal income
taxes, but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for Federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio--Municipal
Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of Federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may invest more than
25% of its net assets in (i) Municipal Obligations the interest on which is paid
solely from revenues of similar projects, and (ii) private activity bonds
bearing Tax-Exempt Interest, it does not currently intend to do so on a regular
basis. To the extent the New York Municipal Money Market Portfolio's assets are
concentrated in Municipal Obligations that are payable from the revenues of
similar projects, the Portfolio will be subject to the peculiar risks presented
by the laws and economic conditions relating to such states or projects to a
greater extent than it would be if its assets were not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
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<PAGE>
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies-- Money Market Portfolio--Stand-by
Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's or S&P; commercial paper rated in the highest grade by Moody's or S&P;
and certificates of deposit issued by United States branches of United States
banks with assets of $1 billion or more. At no time will more than 20% of the
Portfolio's total assets be invested in taxable short-term securities unless the
Portfolio's investment adviser has determined to temporarily adopt a defensive
investment policy in the face of an anticipated softening in the market for
Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities" and "Investment Objectives and Policies" in the
Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security. In the opinion of
the Portfolio's investment adviser, any risk to the Portfolio should be limited
by its intention to continue to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code of
1986, as amended, and by its policies restricting investments to obligations
with short-term maturities and obligations which qualify as eligible securities.
In order to qualify as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended, the Portfolio will not purchase the securities
of any issuer if as a result more than 5% of the value of the Portfolio's assets
would be invested in the securities of such issuer, except that (a) up to 50% of
the value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term economic problems
that could seriously affect their ability and that of other issuers of New York
Municipal Obligations to meet their financial obligations.
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Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and fewer markets for their
outstanding debt obligations. In recent years, several different issues of
municipal securities of New York State and its agencies and instrumentalities
and of New York City have been downgraded by Standard & Poor's Corporation
("S&P") and Moody's Investor Service, Inc. ("Moody's"). On the other hand,
strong demand for New York Municipal Obligations has more recently had the
effect of permitting New York Municipal Obligations to be issued with yields
relatively lower, and after issuance to trade in the market at prices relatively
higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers of New York Municipal Obligations could result in defaults or
declines in the market values of those issuers' existing obligations and,
possibly, in the obligations of other issuers of New York Municipal Obligations.
Although no issuers of New York Municipal Obligations were as of the date of
this Prospectus in default with respect to the payment of their debt
obligations, the occurrence of any such default could adversely affect the
market values and marketability of all New York Municipal Obligations and,
consequently, the net asset value of the Portfolio's shares. Some of the
significant financial considerations relating to the Fund's investments in New
York Municipal Obligations are summarized in the Statement of Additional
Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
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The Money Market, Municipal Money Market, Government Obligations Money
Market and New York Municipal Money Market Portfolios' respective investment
objectives and the policies described above may be changed by the Fund's Board
of Directors without the affirmative vote of the holders of a majority of the
respective Portfolios' outstanding shares. Such changes may result in a
Portfolio having investment objectives which differ from those an investor may
have considered at the time of investment. There is no assurance that the
investment objectives of the Portfolios will be achieved. The Portfolios may
not, however, change the following investment limitations without such a vote of
their respective shareholders. (A more detailed description of the following
investment limitations, together with other investment limitations that cannot
be changed without a vote of shareholders, is contained in the Statement of
Additional Information under "Investment Objectives and Policies.")
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with any such borrowing and in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by a Portfolio, except that up to 25% of the value of
a Portfolio's total assets may be invested without regard to such 5%
limitation.
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The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the
value of the Portfolio's assets and may make time deposits.
2. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
The Municipal Money Market may not:
1. Purchase any securities which would cause more than 25% of the value
of the total assets of the Portfolio to be invested in obligations at the
time of purchase to be invested of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Municipal Money Market Portfolio's outstanding shares, the Portfolio may not
change its policy of investing during normal market conditions at least 80% of
its net assets in obligations the interest on which is Tax-Exempt Interest of
AMT Interest.
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under Federal income tax provision applicable to regulated
investment companies.
The New York Municipal Money market may not:
1. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the NEW YORK MUNICIPAL MONEY MARKET Portfolio's outstanding shares, the
Portfolio may not change its policy of investing during normal market conditions
at least 80% of its net assets in obligations the interest on which is
Tax-Exempt Interest.
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PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Bedford Shares are sold without a sales load on a continuous basis
by the Distributor. The Distributor is located at 466 Lexington Avenue, New
York, New York. Investors may purchase Bedford Shares through an account
maintained by the investor with his brokerage firm (the "Account") and may also
purchase Shares directly by mail or bank wire. The minimum initial investment is
$1,000, 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 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
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Bedford 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.
A broker may offer investors maintaining Accounts the ability to purchase
Bedford Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Bedford Class designated by the investor
as the "Primary Bedford Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Bedford Class at any time by
so instructing his broker.
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<PAGE>
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.
DIRECT PURCHASES. An investor may also make direct investments at any time
in any Bedford Class he selects through any broker that has entered into a
dealer agreement with the Distributor (a "Dealer"). An investor may make an
initial investment in any of the Bedford Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Bedford Family" c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or 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 in any of the Bedford Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
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) 533-7719 (in
Delaware call collect (302) 791-1196), 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 Dealer to wire the specified amount, together with
your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Bedford 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.
20
<PAGE>
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Bedford Shares may redeem Bedford 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 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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares of the Primary Bedford Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request to The Bedford Family c/o PFPC,
P.O. Box 8950, Wilmington, Delaware 19899. 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, each signature must be guaranteed. A
signature guarantee verifies the authenticity of your signature and the
guarantor must be a participant in a STAMP program (a Securities Transfer Agents
Medallion Program). You may call the Transfer Agent at (800) 533-7719 to
determine whether the entity that will guarantee the signature is an eligible
guarantor. Guarantees must be signed by an authorized signatory of the bank,
trust company or member firm and "Signature Guaranteed" must appear with the
signature.
Direct 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)533-7719 (in Delaware call collect (302)791-1196). 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. 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.
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<PAGE>
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 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
$100; however, a broker/dealer may establish a higher minimum. An investor
wishing to use this check writing redemption procedure should complete specimen
signature cards, and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own Shares
through an Account should contact their brokers for signature cards. Investors
of joint accounts may elect to have checks honored with a single signature.
Check redemptions will be subject to PNC Bank's rules governing checks. An
investor will be able to stop payment on a check redemption. The Fund or PNC
Bank may terminate this redemption service at any time, and neither shall incur
any liability for honoring checks, for effecting redemptions to pay checks, or
for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNCBank, 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 REDEMPTION INFORMATION. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in a Bedford 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.
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<PAGE>
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each of the Portfolios for the purpose of
pricing purchase and redemption orders is determined twice each day, once as of
12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on each weekday
with the exception of those holidays on which either the NYSE or the FRB is
closed. Currently, the NYSE 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 on
which 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 each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate nineteen separate investment portfolios. Each of
the Bedford Classes represents interests in one of the following such investment
portfolios: the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809. PNC Bank serves as the sub-adviser for each of the Portfolios
other than the New York Municipal Money Market Portfolio, which has no
sub-adviser. PNC Bank and its predecessors have been in the business of managing
the investments of fiduciary and other accounts in the Philadelphia area since
1847. PNC Bank 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. PNC Bank Corp is a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolios, and maintains
the Portfolios' financial accounts and records. PNC Bank, as sub-adviser to all
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-adviser, provides research and credit analysis and provides PIMC with
certain other services. In entering into Portfolio transactions for a Portfolio
with a broker, PIMC may take into account the sale by such broker of shares of
the Fund, subject to the requirements of best execution.
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<PAGE>
For the services provided to and expenses assumed by it for the benefit of
each of the Money Market and Government Obligations Portfolios, PIMC is entitled
to receive the following fees, computed daily and payable monthly based on a
Portfolio's average daily net assets: .45% of the first $250 million; .40% of
the next $250 million; and .35% of net assets in excess of $500 million.
For the services provided and expenses assumed by it with respect to the
Municipal Money Market and New York Municipal Money Market Portfolios, PIMC is
entitled to receive the following fees, computed daily and payable monthly based
on the Portfolio's average daily net assets: .35% of the first $250 million;
.30% of the next $250 million; and .25% of net assets in excess of $500 million.
PIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fees paid by the Fund to PIMC with respect to any Portfolio for
which PNC Bank acts as sub-adviser. Such sub-advisory fees have no effect on the
advisory fees payable by such Portfolio to PIMC. In addition, PIMC may from time
to time enter into an agreement with one of its affiliates pursuant to which it
delegates some or all of its accounting and administrative obligations under its
advisory agreements with the Fund relating to any Portfolio. Any such
arrangement would have no effect on the advisory fees payable by each Portfolio
to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .20% of the average net assets of the Money Market
Portfolio, .05% of the average net assets of the Municipal Money Market
Portfolio, .30% of the average net assets of the Government Obligations Money
Market Portfolio and 0% of the average net assets of the New York Municipal
Money Market Portfolio. For that same year, PIMC waived approximately .17%,
.28%, .12% and .35% of the average net assets of the Money Market Portfolio, the
Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio, respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market and New
York Municipal Money Market Portfolios and generally assists such Portfolios in
all aspects of their administration and operation, including matters relating to
the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at a rate of .10% of the
average daily net assets of the Municipal Money Market and New York Municipal
Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an indirect wholly
owned subsidiary of PNC Bank Corp, serves as the Fund's transfer agent and
dividend disbursing agent. PFPC may enter into shareholder servicing agreements
with registered broker/dealers who have entered into dealer agreements with the
Distributor for the provision of certain shareholder support services to
customers of such broker/dealers who are shareholders of the Portfolios. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
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<PAGE>
EXPENSES
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. These expenses include, but are not limited
to, organizational costs, fees paid to the investment adviser, fees and expenses
of officers and directors who are not affiliated with the Portfolio's investment
adviser or Distributor, taxes, interest, legal fees, custodian fees, auditing
fees, brokerage fees and commissions, certain of the fees and expenses of
registering and qualifying the Portfolio and its shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information annually to existing
shareholders that are not attributable to a particular class, the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class, fidelity bond and directors and officers
liability insurance premiums, the expense of using independent pricing services
and other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. Any general expenses of
the Fund that are not readily identifiable as belonging to a particular
investment portfolio of the Fund will be allocated among all investment
portfolios of the Fund based upon the relative net assets of the investment
portfolios at the time such expenses were accrued. In addition, distribution
expenses, transfer agency expenses, expenses of preparing, printing and
distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were 1.14% of the average net assets with respect to the Bedford Class of the
Money Market Portfolio (not taking into account waivers and reimbursements of
.17%), were 1.12% of the average net assets with respect to the Bedford Class of
the Municipal Money Market Portfolio (not taking into account waivers and
reimbursements of .28%), were 1.10% of the average net assets with respect to
the Bedford Class of the Government Obligations Money Market Portfolio (not
taking into account waivers and reimbursements of .125%) and were 1.14% of the
average net assets with respect to the Bedford Class of the New York Municipal
Money Market Portfolios (not taking into account waivers and reimbursements of
.36%).
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DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Counsellors Securities Inc. (the "Distributor"), a wholly owned subsidiary
of Warburg Pincus Counsellors, Inc., with an address at 466 Lexington Avenue,
New York, New York, acts as distributor of the Shares of each of the Bedford
Classes of the Fund pursuant to separate distribution contracts (collectively,
the "Distribution Contracts") with the Fund on behalf of each of the Bedford
Classes.
The Board of Directors of the Fund approved and adopted the Distribution
Contracts and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant
Bedford Class a distribution fee, which is accrued daily and paid monthly, of up
to .65% on an annualized basis of the average daily net assets of the relevant
Bedford Class. The actual amount of such compensation is agreed upon from time
to time by the Fund's Board of Directors and the Distributor. Under the
Distribution Contracts, the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Bedford Class on any day to the extent necessary to assure that the fee
required to be accrued by such Class does not exceed the income of such Class on
that day. In addition, the Distributor may, in its discretion, voluntarily waive
from time to time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including broker/dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of any
relevant Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Bedford Class the fee agreed
to under the relevant Distribution Contract. None of the Plans obligates the
Fund to reimburse the Distributor for the actual expenses the Distributor may
incur in fulfilling its obligations under a Plan on behalf of the relevant
Bedford Class. Thus, under each of the Plans, even if the Distributor's actual
expenses exceed the fee payable to the Distributor thereunder at any given time,
the Fund will not be obligated to pay more than that fee. If the Distributor's
actual expenses are less than the fee it receives, the Distributor will retain
the full amount of the fee.
The Plans in effect with respect to the Bedford Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and the New
York Municipal Money Market Portfolios have been approved by shareholders. Under
the terms of Rule 12b-1, each will remain in effect only if approved at least
annually by the Fund's Board of Directors, including those directors who are not
"interested persons" of the Fund as that term is defined in the 1940 Act and who
have no direct or indirect financial interest in the operation of the Plan or in
any agreements related thereto ("12b-1 Directors"). Each of the Plans may be
terminated at any time by vote of a majority of the 12b-1 Directors or by vote
of a majority of the Fund's outstanding voting securities of the relevant
Bedford Class. The fee set forth above will be paid by the Fund on behalf of the
relevant Bedford Class to the Distributor unless and until the relevant Plan is
terminated or not renewed.
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DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Bedford Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of 4:00 p.m. Eastern Time. Net
short-term capital gains, if any, will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, such Portfolio will be relieved of
Federal income tax on amounts distributed to shareholders, but shareholders,
unless otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital) regardless of whether such
distributions are paid in cash or reinvested in additional shares. None of the
Portfolios intends to make distributions that will be eligible for the corporate
dividends received deduction.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to securities bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income. The maximum marginal rate on
ordinary income for individuals, trusts and estates is generally 31%, while the
maximum rate imposed on net capital gain of such taxpayers is 28%. Corporate
taxpayers are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio intend to pay substantially all of their dividends as "exempt
interest dividends." Investors in either of these Portfolios should note,
however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" in their Federal income tax returns and
that in two circumstances such amounts, while exempt from regular Federal income
tax, are subject to Federal alternative minimum tax at a rate of 24% in the case
of individuals, trusts and estates and 20% in the case of corporate taxpayers.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986, will generally constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
Federal alternative minimum tax liability. The New York Municipal Money Market
Portfolio may invest up to 20% of its net assets in such private activity bonds
and the Municipal Money Market Portfolio may invest up to 100% of its net assets
in such private activity bonds, although the Municipal Money Market Portfolio
does not presently intend to do so. Secondly, tax-exempt interest and "exempt
interest dividends" derived from all Municipal Obligations must be taken into
account by corporate taxpayers in determining their adjusted current earnings
adjustment for Federal alternative minimum tax purposes. Investors should
additionally be aware of the possibility of state and local alternative minimum
or minimum income tax liability, in addition to Federal alternative minimum tax.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments. Exempt interest
dividends derived from interest on New York Municipal Obligations will also be
exempt from New York State and New York City personal income (but not corporate
franchise) taxes.
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<PAGE>
Each of the Municipal Money Market Portfolio and the New York Municipal
Money Market Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable and will apply such percentages
uniformly to all distributions declared from net investment income during that
year. These percentages may differ significantly from the actual percentages for
any particular day. In addition, the New York Municipal Money Market Portfolio
will determine annually the percentage amounts exempt from New York State and
New York City personal income taxes, and the amounts, if any, subject to such
taxes. The exclusion or exemption of interest income for Federal income tax
purposes, or New York State or New York City personal income tax purposes, in
most cases does not result in an exemption under the tax laws of any other state
or local authority. Investors who are subject to tax in other states or
localities should consult their own tax advisers about the taxation of dividends
and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. Each Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
Federal excise tax.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of the Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts since
such plans and accounts are generally tax-exempt and, therefore, not only would
not gain any additional benefit from the Portfolios' dividends being tax-exempt
but also such dividends would be taxable when distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal and state income tax consequences described above.
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.
28
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE BEDFORD CLASSES AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
BEDFORD CLASSES.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 6, 1996, to the Fund's knowledge, no person held of record
or beneficially 25% or more of the outstanding shares of all of the 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) 533-7719 (in Delaware call collect
(302) 791-1196).
29
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
BEDFORD FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Bedford
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Bedford Family 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 cover
Investment Objectives and Policies ....... 2 8
Directors and Officers ................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 35 22
Portfolio Transactions ................... 40 N/A
Purchase and Redemption Information ...... 42 18
Valuation of Shares ...................... 42 22
Taxes .................................... 45 26
Additional Information Concerning Fund
Shares.................................. 50 27
Miscellaneous ............................ 52 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 four classes of
shares (the "Bedford Classes") representing interests in four investment
portfolios (the "Portfolios") of the Fund: the Money Market Portfolio, the
Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio. The Bedford Classes
are 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 Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve
the sale of securities held by a Portfolio pursuant to a Portfolio's agreement
to repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments
held by the Money Market Portfolio or the Municipal Money Market Portfolio may
have maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days), and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity of the Money Market, Municipal Money
Market or New York Municipal Money Market Portfolio and whether a variable rate
demand instrument has a remaining maturity of 397 calendar days or less, each
instrument will be deemed by the Portfolio to have a maturity equal to the
longer of the period remaining until its next interest rate adjustment or the
period remaining until the principal amount can be recovered through demand. In
determining whether an unrated variable rate demand instrument is an eligible
security, the Portfolio's investment adviser will follow guidelines adopted by
the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include "when
issued" and delayed delivery securities purchased for delivery beyond the normal
settlement date at a stated price and yield. While the Money Market Portfolio,
Municipal Money Market Portfolio or New York Municipal Money Market Portfolio
has firm commitments outstanding, such Portfolio will maintain in a
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<PAGE>
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 relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio, Municipal
Money Market Portfolio and New York Municipal Money Market Portfolio may enter
into stand-by commitments with respect to obligations issued by or on behalf of
states, territories, and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies, instrumentalities and
authorities (collectively, "Municipal Obligations") held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option a specified Municipal Obligation at its amortized cost value to the
Portfolio plus accrued interest, if any. Stand-by commitments may be exercisable
by the Money Market Portfolio, Municipal Money Market Portfolio or New York
Municipal Money Market Portfolio at any time before the maturity of the
underlying Municipal Obligations and may be sold, transferred or assigned only
with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio expects that stand-by commitments
will generally be available without the payment of any direct or indirect
consideration. However, if necessary or advisable, either such Portfolio may pay
for a stand-by commitment either separately in cash or by paying a higher price
for portfolio securities which are acquired subject to the commitment (thus
reducing the yield to maturity otherwise available for the same securities). The
total amount paid in either manner for outstanding stand-by commitments held by
the Money Market Portfolio, Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of the
relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio intends to enter into stand-by
commitments only with dealers, banks and broker-dealers which, in the investment
adviser's opinion, present minimal credit risks. Any such Portfolio's reliance
upon the credit of these dealers, banks and broker-dealers will be secured by
the value of the underlying Municipal Obligations that are subject to the
commitment.
The Money Market Portfolio, Municipal Money Market Portfolio and New
York Municipal Money Market Portfolio will acquire stand-by commitments solely
to facilitate portfolio liquidity and do not intend to exercise their rights
thereunder for trading purposes. The acquisition of a stand-by commitment will
not affect the valuation or assumed maturity of the underlying
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<PAGE>
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 either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF
U.S. BANKS. For purposes of the Money Market Portfolio's investment policies
with respect to bank obligations, the assets of a bank or savings institution
will be deemed to include the assets of its domestic and foreign branches.
Investments in bank obligations will include obligations of domestic branches of
foreign banks and foreign branches of domestic banks. Such investments may
involve risks that are different from investments in securities of domestic
branches of U.S. banks. These risks may include future unfavorable political and
economic developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency controls, interest limitations, or
other governmental restrictions which might affect the payment of principal or
interest on the securities held in the Money Market Portfolio. Additionally,
these institutions may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting and recordkeeping requirements than
those applicable to domestic branches of U.S. banks. The Money Market Portfolio
will invest in obligations of domestic branches of foreign banks and foreign
branches of domestic banks only when its investment adviser believes that the
risks associated with such investment are minimal.
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
4
<PAGE>
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) paper is
restricted as to disposition under the Federal securities laws and is generally
sold to institutional investors such as the Fund which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of investment dealers who make a market in the Section 4(2) paper,
thereby providing liquidity. See "Illiquid Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the repurchase
agreements described in the Prospectus generally equals the price paid by a
Portfolio plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt securities
represent ownership interests in individual pools of residential mortgage loans.
These securities are designed to provide monthly payments of interest and
principal to the investor. Each mortgagor's monthly payment to his lending
institution on his residential mortgage is "passed-through" to investors.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions which originate
mortgages for the pools are subject to certain standards, including credit and
underwriting criteria for individual mortgages included in the pools.
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
5
<PAGE>
not possible to predict accurately the average life of a particular pool. For
pools of fixed rate 30 year mortgages, common industry practice is to assume
that prepayments will result in a 12 year average life. Pools of mortgages with
other maturities or different characteristics will have varying assumptions
concerning average life. The assumed average life of pools of mortgages having
terms of less than 30 years is less than 12 years, but typically not less than 5
years. Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of underlying mortgage-related securities. Conversely, in periods of
rising rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above. Actual prepayment
experience may cause the yield of mortgage-related securities to differ from the
assumed average life yield. In addition, as noted in the 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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b) above ("comparable obligations"); (4) securities that are not
rated and are issued by an issuer that does not have comparable obligations
rated by an NRSRO ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to a security satisfying (2) or (3)
above; and (5) long-term obligations that have remaining maturities in excess of
397 calendar
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days that are subject to a demand feature or put (such as a guarantee, a letter
of credit or similar credit enhancement) ("demand instrument") (a) that are
unconditional (readily exercisable in the event of default), provided that the
demand feature satisfies (2), (3) or (4) above, or (b) that are not
unconditional, provided that the demand feature satisfies (2), (3) or (4) above,
and the demand instrument or long-term obligations of the issuer satisfy (2) or
(4) above for long-term debt obligations. The Board of Directors will approve or
ratify any purchases by the Money Market and Government Obligations Money Market
Portfolios of securities that are rated by only one NRSRO or that are Unrated
Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more than 10%
of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the Securities Act
including repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
SEC Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. The investment adviser anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this relatively new regulation and
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the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to the New
York Municipal Money Market Portfolio's investments in New York Municipal
Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a comparatively
small share of the nation's farming and mining activity. The State has a
declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries. New York City (the "City"),
which is the most populous city in the State and nation and is the center of the
nation's largest metropolitan area, accounts for approximately 41% of both the
State's population and personal income.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State has grown more slowly than the nation as
a whole, gradually eroding its relative economic affluence. The recession has
been more severe in the State, owing to a significant retrenchment in the
financial services industry, cutbacks in defense spending, and an overbuilt real
estate market. There can be no assurance that the State economy will not
experience worse-than-predicted results in the 1995-96 fiscal year, with
corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national rate in
the second half of 1981 and remained lower until 1991. It stood at 6.9% in 1994.
The total employment growth rate in the State has been below the national
average since 1984, and is expected to grow to less than 0.5% in 1995. State per
capita personal income remains above national average. State per capita income
for 1984 was estimated at $25,999, which was 19.2% above the 1994 estimated
national average of $21,809. During the past ten years, total personal income in
the State rose slightly faster than the national average only in 1986 through
1989.
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STATE BUDGET. The State Constitution requires the Governor to submit
to the Legislature a balanced executive budget which contains a complete plan of
expenditures for the ensuing fiscal year and all moneys and revenues estimated
to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the executive budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor is required
to submit to the Legislature, quarterly budget updates which include a revised
cash-basis state financial plan and explanation of any changes from the previous
state financial plan.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
financial plan for the 1995-96 fiscal year was formulated on June 20, 1995 and
was based upon the State's budget as enacted by the Legislature and signed into
Law by the Governor (the "1995-96 State Financial Plan").
The 1995-96 State Financial Plan was the first to be enacted in the
administration of the Governor, who assumed office on January 1. It was the
first budget in over half a century which proposed and, as enacted, projected an
absolute year-over-year decline in disbursements in the General Fund, the
State's principal operating fund. Spending for State operations was projected to
drop even more sharply, by 4.6%. Nominal spending from all State spending
sources (i.e., excluding Federal aid) was proposed to increase by only 2.5% from
the prior fiscal year, in contrast to the prior decade when such spending growth
averaged more than 6.0% annually.
In his executive budget, the Governor indicated that in the 1995-96
fiscal year, the state financial plan, based on then-current law governing
spending and revenues, would be out of balance by almost $4.7 billion, as a
result of the projected structural deficit resulting from the ongoing disparity
between sluggish growth in receipts, the effect of prior-year tax changes, and
the rapid acceleration of spending growth; the impact of unfunded 1994-95
initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
This gap was projected to be closed in the 1995-96 State Financial
Plan through a series of actions, mainly spending
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reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
1995-96 State Financial Plan projected (i) nearly $1.6 billion in savings from
cost containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily through a new Quick Draw Lottery game, changes to tax
payments schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The 1995-96 State Financial Plan included actions that will have an
effect on the budget outlook for State fiscal year 1996-97 and beyond. The
Division on the Budget estimated that the 1995-96 State Financial Plan contained
actions that provide nonrecurring resources or savings totaling approximately
$900 million while the State comptroller (the "Comptroller") believed that such
amount exceeded $1 billion. In addition to this use of nonrecurring resources,
the 1995-96 State Financial Plan reflected actions that will directly affect the
State's 1996-97 fiscal year baseline receipts and disbursements. The three-year
plan to reduce State personal income taxes will decrease State tax receipts by
an estimated $1.7 billion in State fiscal year 1996-97 in addition to the amount
of reduction in State fiscal year 1995-96. Further significant reductions in the
personal income tax are scheduled for the 1997-98 State fiscal year. Other tax
reductions enacted in 1994 and 1995 are estimated to cause an additional
reduction in receipts of over $500 million in 1996-97, as compared to the level
of receipts in 1995-96. Similarly, many actions taken to reduce disbursements in
the State's 1995-96 fiscal year are expected to provide greater reductions in
the State's fiscal year 1996-97. These include actions to reduce the State
workforce, reduce Medicaid and welfare expenditures and slow community mental
hygiene program development.
The State issued the first of the three required quarterly updates
(the "First Quarter Update") to the 1995-96 State Financial Plan on July 28,
1995. The First Quarter Update projected continued balance in the State's
1995-96 State Financial Plan. Actual cash receipts and disbursements during the
first quarter of the fiscal year were impacted by the late adoption of the
budget, and fell somewhat short of original monthly cashflow estimates. Receipt
variances were mainly related to timing issues rather than changes in the
forecast. Disbursement variances were also ascribed to timing factors.
On October 2, 1995, the State Comptroller releases a report on the
State's financial condition. The report identified
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several risks to the 1995-96 State Financial Plan and also estimated a potential
imbalance in receipts and disbursements in the 1996-97 fiscal year of at least
$2.7 billion and in the 1997-98 fiscal year of at least $3.9 billion. The
Governor is required to submit a balanced budget to the State Legislature and
has indicated that he will close any potential imbalance primarily through
General Fund expenditure reductions and without increases in taxes or deferrals
of scheduled tax reductions.
The State issued its second quarterly update to the 1995-96 State
Financial Plan on October 26, 1995 (the "Mid-Year Update" and together with the
First Quarter Update, the "Financial Plan Updates"). The Mid-Year Update
projected continued balance in the 1995-96 State Financial Plan, with estimated
receipts reduced by a net $71 million and estimated disbursements reduced by a
net $30 million as compared to the First Quarter Update. The resulting General
Fund balance decreased from $213 million in the First Quarter Update to $172
million in the Mid-Year Update, reflecting the use of $41 million from the
contingency reserve fund for payments of litigation and disallowance expenses.
The 1995-96 State Financial Plan and the Financial Plan Updates were
based on a number of assumptions and projections. Because it is not possible to
predict accurately the occurrence of all factors that may affect the 1995-96
State Financial Plan or the Financial Plan Updates, actual results could differ
materially and adversely from projections made at the outset of a fiscal year.
There can be no assurance that the State will not face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain State programs at current levels. To address any potential
budgetary imbalance, the State may need to take significant actions to align
recurring receipts and disbursements in future fiscal years.
A significant risk to the 1995-96 State Financial Plan arises from tax
legislation pending in Congress. Changes to federal tax treatment of capital
gains are likely to flow through automatically to the State personal income tax.
Such changes, depending upon their precise character and timing, and upon
taxpayer response, could produce either revenue gains or losses during the
balance of the State's fiscal year.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating
fund of the State and is used to account for all financial transactions, except
those required to be accounted for in another fund. It is the States largest
funds and receives all State taxes and other resources not dedicated to
particular purposes.
The State reported a General Fund operating deficit of $1.426 billion
for the 1994-95 fiscal year, as compared to an operating surplus of $914 million
for the prior fiscal year. The 1994-95 fiscal year deficit was caused by several
factors,
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including the use of $1.026 billion of 1993-94 cash-based surplus to Fund
operating expenses in 1994-95 and the adoption of changes in accounting
methodologies by the State Comptroller. These factors were offset by net
proceeds of $315 million in bonds issued by the Local Government Assistance
Corporation. The General Fund is projected to be balanced on a cash basis for
the 1995-96 fiscal year.
Total revenues for 1994-95 were 31.455 billion. Revenues decreased
$173 million over the prior fiscal year, a decrease of less than one percent.
Total expenditures for 1994-95 totaled $33.079 billion, an increase of $2.083
billion, or 6.7 percent over the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principals) basis as of March 31, 1995 showed an accumulated deficit
in its combined governmental funds of $1.666 billion reflecting liabilities of
$14.778 billion and assets of $13.112 billion.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by
which the State of New York may incur debt. Under the State Constitution, the
State may not, with limited exceptions for emergencies, undertake long-term
borrowing (I.E., borrowing for more than one year) unless the borrowing is
authorized in a specific amount for a single work or purpose by the Legislature
and approved by the voters. There is no limitation on the amount of long-term
debt that may be so authorized and subsequently incurred by the State.
The State may undertake short-term borrowings without voter approval
(i) in anticipation of the receipt of taxes and revenues, by issuing tax and
revenue anticipation notes, and (ii) in anticipation of the receipt of proceeds
form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase or contractual-obligation financings which involve obligations of
public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of facilities or the acquisition and rehabilitation of equipment,
and expect to meet their debt service requirements through the receipt of rental
or other contractual payments made by the State. Although these financing
arrangements involve a contractual agreement by the State to make payments to a
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public authority, municipality or other entity, the State's obligation to make
payments is generally expressly made subject to appropriation by the Legislature
and the actual availability of money to the State for making the payments. The
State has also entered into a contractual-obligation financing arrangement with
the Local Government Assistance Corporation ("LGAC") in an effort to restructure
the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation was
enacted creating the New York Local Government Assistance Corporation ("LGAC"),
a public benefit corporation empowered to issue long-term obligations to fund
certain payments to local governments traditionally funded through New York
State's annual seasonal borrowing. The Legislation empowered LGAC to issue its
bonds and notes in an amount not in excess of $4.7 billion (exclusive of certain
refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which are to be amortized over no more
than 30 years, was expected to eliminate the need for continued short-term
seasonal borrowing. The legislation also dedicated revenues equal to one-quarter
of the four cent State sales tax and use tax to pay debt service on these bonds.
The legislation also imposed a cap on the annual seasonal borrowing of the State
at $4.7 billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified both the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. As of June
1995, LGAC had issued bonds to provide net proceeds of $4.7 billion, completing
the program. The impact of LGAC's borrowing is that the State is able to meet
its cash flow needs in the first quarter of the fiscal year without relying on
short-term seasonal borrowings. The 1995-96 State Financial Plan includes no
spring borrowing nor did the 1994-95 State Financial Plan, which was the first
time in 35 years there was no short-term seasonal borrowing.
In June 1994, the Legislature passed a proposed constitutional
amendment that would significantly change the long-term financing practices of
the State and its public authorities. The proposed amendment would permit the
State, within a formula-based cap, to issue revenue bonds, which would be debt
of the State secured solely by a pledge of certain State tax receipts (including
those allocated to State funds dedicated for transportation purposes), and not
by the full faith and credit of the State. In addition, the proposed amendment
would (i) permit multiple purpose general obligation bond proposals to be
proposed on the same ballot, (ii) require the State debt be incurred only for
capital projects included in a multi-year capital financing plan, and (iii)
prohibit, after its effective date, lease-purchase and contractual-obligation
financing mechanisms for State facilities.
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Before the approved constitutional amendment can be presented to the
voters for their consideration, it must be passed by a separately elected
legislature. The amendment must therefore be passed by the newly elected
Legislature in 1995 prior to presentation to the voters in November 1995. The
amendment was passed by the Senate in June 1995, and the Assembly is expected to
pass the amendment shortly. If approved by the voters, the amendment would
become effective January 1, 1996.
On January 13, 1992, Standard & Poor's Corporation ("Standard &
Poor's) reduced its ratings on the State's general obligation bonds from A to A-
and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. Standard & Poor's also
continued its negative rating outlook assessment on State' general obligation
debt. On April 26, 1993, Standard & Poor's revised the rating outlook assessment
to stable. On February 14, 1994, Standard & Poor's raised its outlook to
positive and, on February 28, 1994, confirmed its A- rating. On January 6, 1992,
Moody's Investors Service, Inc. ("Moody's") reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The State anticipates that its capital programs will be financed, in
part, by State and public authorities borrowings in 1995-96. The State expects
to issue $248 million in general obligation bonds (including ($170 million for
purposes of redeeming outstanding bond anticipation notes) and $186 million in
general obligation commercial paper. The Legislature has also authorized the
issuance of up to $33 million in certificates of participation during the
State's 1995-96 fiscal year for equipment purchases and $14 million for capital
purposes. These projections are subject to change if circumstances require.
Principal and interest payments on general obligation bonds and
interest payments on bond anticipation notes and on tax and revenue anticipation
notes were $793.3 million for the 1994-95 fiscal year, and are estimated to be
$774.4 million for the 1995-96 fiscal year. These figures do not include
interest payable on State General Obligation Refunding Bonds issued in July 1992
("Refunding Bonds") to the extent that such interest was paid from an escrow
fund established with the proceeds of such Refunding Bonds. Principal and
interest payments on fixed rate and variable rate bonds issued by LGAC were
$239.4 million for the 1994-95 fiscal year, and estimated to be $328.2 million
for 1995-96. State lease-purchase rental and contractual obligation payments for
1994-95, including State installment payments relating to certificates of
participation, were $1.607 billion and are estimated to be $1.641 billion in
1995-96.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been
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called upon to make any direct payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central New York;
(2) certain aspects of New York State's Medicaid policies and its rates,
regulations and procedures; (3) an action against New York State and New York
city officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges by commercial insurers,
employee welfare benefit plans, and health maintenance organizations to the
impositions of 13%, 11% and 9% surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation to timely provide certain data; (9) a challenge to the
constitutionality of the treatment of certain moneys held in a Supplemental
Reserve Fund; and (10) a challenge to the constitutionality of the State lottery
game.
Several actions challenging the constitutionality of legislation
enacted during the 1990 legislative session which changed actuarial funding
methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller has developed a plan to restore the State's retirement systems to
prior funding levels. Such funding is expected to exceed prior levels by $30
million in fiscal 1994-95, $63 million in fiscal 1995-96, $116 million in fiscal
1996-97, $193 million in fiscal 1997-98, peaking at $241 million in fiscal
1998-99. Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE v. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State is required to make
aggregate payments of $351.4 million, of which $90.3 million have been made.
Annual payments to the various parties will continue through the State's 2002-03
fiscal year in amounts which will not exceed $48.4 million in any fiscal year
subsequent to the State's 1994-95 fiscal year.
The legal proceedings noted above involve State finances, State
programs and miscellaneous tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial. These
proceedings could affect adversely the financial condition of the State. Adverse
developments in
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these proceedings or the initiation of new proceedings could affect the ability
of the State to maintain a balanced 1995-96 State Financial Plan. An adverse
decision in any of these proceedings could exceed the amount of the 1995-96
State Financial Plan reserve for the payment of judgments and, therefore, could
affect the ability of the State to maintain a balanced 1995-96 State Financial
Plan. In its audited financial statements for the fiscal year ended March 31,
1995, the State reported its estimated liability for awarded and anticipated
unfavorable judgments to be $676 million.
Although other litigation is pending against New York State, except as
described above, no current litigation involves New York State's authority, as a
matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
THE AUTHORITIES. The fiscal stability of the State is related to the
fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1992, the latest data
available, there were 18 Authorities that had outstanding debt of $100 million
or more. The aggregate outstanding debt, including refunding bonds, of these 18
Authorities was $70.3 billion. As of March 31, 1995, aggregate public authority
debt outstanding as State-supported debt was $27.9 billion and as State-related
debt was $36.1 billion.
Authorities are generally supported by revenues generated by the
projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance
16
<PAGE>
payments are so diverted, the affected localities could seek additional State
funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of
New York is closely related to the fiscal health of its localities, particularly
the City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. The
City has achieved balanced operating results for each of its fiscal years since
1981 as reported in accordance with the then-applicable GAAP.
In 1975, New York City suffered a fiscal crisis that impaired the
borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its A-
rating of City bonds, continued its negative rating outlook assessment and
stated that maintenance of such rating depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to Ba1,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in
February 1991 to Baa1. On July 10, 1995, Standard & Poor' downgraded its rating
on the City's $23 billion of outstanding general obligation bonds to "BBB+" from
"A-", citing to the City's chronic structural budget problems and weak economic
outlook. Standard & Poor's stated that New York City's reliance on one-time
revenue measures to close annual budget gaps, a dependence on unrealized labor
savings, overly optimistic estimates of revenues and state and federal aid and
the City's continued high debt levels also contributed to its decision to lower
the rating.
New York City is heavily dependent on New York State and Federal
assistance to cover insufficiencies in its revenues. There can be no assurance
that in the future Federal and State assistance will enable the city to make up
its budget deficits. To help alleviate the city's financial difficulties, the
Legislature credited the Municipal Assistance Corporation ("MAC") in 1975. MAC
is authorized to issue bonds and notes payable from certain stock transfer tax
revenues, from the City's portion of the State sales tax derived in the City and
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid
17
<PAGE>
revenues below a specified level are included among the events of default in the
resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City. As
of June 30, 1995, MAC had outstanding debt on aggregate of approximately $4.882
billion of its bonds. MAC is authorized to issue bonds and notes to refunds its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to certain
authorities in the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
From time to time, the Control Board staff, OSDC, the City comptroller
and others issue reports and make public statements regarding the City's
financial condition, commenting on, among other matters, the City's financial
plans, projected revenues and expenditures and actions by the City to eliminate
projected operating deficits. Some of these reports and statements have warned
that the City may have underestimated certain expenditures and overestimated
certain revenues and have suggested that the City may not have adequately
provided for future contingencies. Certain of these reports have analyzed the
City's future economic and social conditions and have questioned whether the
City has the capacity to generate sufficient revenues in the future to meet the
costs of its expenditure increases and to provide necessary services.
The City submitted to the Control Board on July 21, 1995 a fourth
quarter modification to the City's financial plan for the 1995 fiscal year (the
"1995 Modification"), which projects a balanced budget in accordance with GAAP
for the 1995 fiscal year, after taking into account a discretionary transfer of
$75 million. On July 11, 1995, the City submitted to the Control Board the
Financial Plan for the 1996 through 1999 fiscal years (the "1996-1999 Financial
Plan").
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<PAGE>
The 1996-1999 Financial Plan projected revenues and expenditures for
the 1996 fiscal year balanced in accordance with GAAP. The projections for the
1996 fiscal year reflected proposed actions to close a previously projected gap
of approximately $3.1 billion for the 1996 fiscal year. The proposed actions in
the 1996-1999 Financial Plan for the 1996 fiscal year included (i) a reduction
in spending of $400 million, primarily affecting public assistance and Medicaid
payment to the City; (ii) expenditure reductions in agencies, totaling $1.2
billion; (iii) transitional labor savings, totaling $600 million; and (iv) the
phase-in of the increased annual pension funding cost due to revisions resulting
from an actuarial audit of the City's pension systems, which would reduce such
costs in the 1996 fiscal year.
The proposed agency spending reductions included the reduction of City
personnel through attrition, government efficiency initiatives, procurement
initiatives and labor productivity initiatives. The substantial agency
expenditure reductions proposed in the 1996-1999 Financial Plan is subject to
the ability of the City to implement proposed reductions in City personnel and
other cost reduction initiatives. In addition, certain initiatives are subject
to negotiation with the City's municipal unions, and various actions, including
proposed anticipated State aid totaling $50 million are subject to approval by
the Governor and the Legislature.
The 1996-1999 Financial Plan also set forth projections for the 1997
through 1999 fiscal years and outlined a proposed gap-closing program to
eliminate projected gaps of $888 million, $1.5 billion and $1.4 billion for the
1997, 1998 and 1999 fiscal years, respectively, after successful implementation
of the $3.1 billion gap-closing program for the 1996 fiscal year. These actions,
a substantial number of which were not specified in detail, include additional
agency spending reductions, reduction in entitlements, government procurement
initiatives, revenue initiatives and the availability of the general reserve.
Contracts with all of the City's municipal unions either expired in
the 1995 fiscal year or will expire in the 1996 fiscal years. The 1996-1999
Financial Plan provided no additional wage increases for City employees after
the 1995 fiscal year. Each 1% wage increase for all union contracts commencing
in the 1995 or 1996 fiscal year would cost the City an additional $141 million
for the 1996 fiscal year and $161 million each year thereafter above the amounts
provided for in the 1996-1999 Financial Plan.
Although the City has balanced its budget since 1981, estimates of the
City's revenues and expenditures, which are based on numerous assumptions, are
subject to various uncertainties. If expected federal or State aid is not
forthcoming, if unforeseen developments in the economy significantly reduce
revenues derived from economically sensitive taxes or necessitate increased
expenditures for public assistance, if the City should negotiate wage increases
for its employees greater than the amounts provided
19
<PAGE>
for in the City's financial plan or if other uncertainties materialize that
reduce expected revenues or increase projected expenditures, then, to avoid
operating deficits, the City may be required to implement additional actions,
including increases in taxes and reductions in essential City services. The City
might also seek additional assistance from New York State.
The City requires certain amounts of financing for seasonal and
capital spending purposes. The City's current monthly cash flow forecast for the
1996 fiscal year shows a need of $2.4 billion of seasonal financing for the 1996
fiscal year. Seasonal financing requirements for the 1995 fiscal year increased
to $2.2 billion from $1.75 billion and $1.4 billion in the 1994 and 1993 fiscal
years, respectively.
Certain localities, in addition to the City, could have financial
problems leading to requests for additional New York State assistance. The
potential impact on the State of such requests by localities was not included in
the projections of the State's receipts and disbursements in the State's 1995-96
fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers")
resulted in the creation of the Financial Control Board for the City of Yonkers
(the "Yonkers Board") by New York State in 1984. The Yonkers Board is charged
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the Legislature to assist Yonkers could result in allocation of New
York State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1993, the total indebtedness of all
localities in New York State other than New York City was approximately $17.7
billion. A small portion (approximately $105 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Fifteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1993.
From time to time, federal expenditure reductions could reduce, or in
some cases eliminate, federal funding of some local programs and accordingly
might impose substantial increased expenditure requirements on affected
localities. If New York State, New York City or any of the Authorities were to
suffer serious financial difficulties jeopardizing their respective access to
the public credit markets, the marketability of notes and bonds issued by
localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Long-range
potential problems of declining urban population, increasing expenditures and
other economic trends could adversely affect localities and require increasing
New York State assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO. Neither
the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and
with respect to the Money Market Portfolio only, except for reverse
repurchase agreements) and then in amounts not in excess of 10% of the
value of the Portfolio's total assets at the time of such borrowing,
and only if after such borrowing there is asset coverage of at least
300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate any of its assets except in connection with such
borrowings and then, with respect to the Money Market Portfolio, in
amounts not in excess of 10% of the value of a Portfolio's total
assets at the time of such borrowing and, with respect to the
Municipal Money Market Portfolio, in amounts not in excess of the
lesser of the dollar amounts borrowed or 10% of the value of a
Portfolio's total assets at the time of such borrowing; or purchase
portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is
not for investment leverage, but solely to facilitate management of
the Portfolio's securities by enabling the Portfolio to meet
redemption requests where the liquidation of portfolio securities is
deemed to be disadvantageous or inconvenient.);
(2) purchase securities of any one issuer, other than securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the
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<PAGE>
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of a Portfolio's assets
may be invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, a
Portfolio may be deemed an underwriter under Federal securities laws
and except to the extent that the purchase of Municipal Obligations
directly from the issuer thereof in accordance with a Portfolio's
investment objective, policies and limitations may be deemed to be an
underwriting;
(5) make short sales of securities or maintain a short position
or write or sell puts, calls, straddles, spreads or combinations
thereof;
(6) purchase or sell real estate, provided that a Portfolio may
invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may
enter into repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market conditions
invest less than 80% of its net assets in securities the interest on which is
exempt from the regular Federal income tax, although the interest on such
securities may constitute an item of tax preference for purposes of the Federal
alternative minimum tax, (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the
Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some
of which may be subject to repurchase agreements, but the Portfolio may
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<PAGE>
make interest-bearing savings deposits in amounts not in excess of 5% of the
value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of
purchase) in securities of issuers (including their predecessors) with less than
three years of continuous operations.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares the Portfolio
are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry concentration
(applicable to the Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but any such change may
require the approval of the Securities and Exchange Commission (the "SEC") and
would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put
if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that
the foregoing condition shall only be applicable with respect to 75%
of the Municipal Money Market Portfolio's total assets. A "Put" means
a right to sell a specified underlying instrument within a specified
period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations as the basis for such opinions.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
Money Market Portfolio will meet the following limitations on its investments in
addition to the fundamental investment limitations described
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<PAGE>
above. These limitations may be changed without a vote of shareholders of the
Money Market Portfolio.
1. The Money Market Portfolio will limit its purchases of the
securities of any one issuer, other than issuers of U.S. Government
securities, to 5% of its total assets, except that the Money Market
Portfolio may invest more than 5% of its total assets in First Tier
Securities of one issuer for a period of up to three business days.
"First Tier Securities" include eligible securities that (i) if rated
by more than one NRSRO, are rated (at the time of purchase) by two or
more NRSROs in the highest rating category for such securities, (ii)
if rated by only one NRSRO, are rated by such NRSRO in its highest
rating category for such securities, (iii) have no short-term rating
and are comparable in priority and security to a class of short-term
obligations of the issuer of such securities that have been rated in
accordance with (i) or (ii) above, or (iv) are Unrated Securities that
are determined to be of comparable quality to such securities.
Purchases of First Tier Securities that come within categories (ii)
and (iv) above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its purchases of Second
Tier Securities, which are eligible securities other than First Tier
Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of Second
Tier Securities of one issuer to the greater of 1% of its total assets
or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only
if after such borrowing there is asset coverage of at least 300
percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and
may lend portfolio securities against collateral consisting of cash or
securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no
23
<PAGE>
investment restriction on the amount of securities that may be
loaned, except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10%
of the Portfolio's annual gross income (without offset for realized
capital gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares of the
Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York Municipal
Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at the time
of such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then in amounts not in excess of
10% of the value of a Portfolio's total assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess
of 5% of the Portfolio's net assets are outstanding. (This borrowing
provision is not for investment leverage, but solely to facilitate
management of the Portfolio's securities by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be disadvantageous or inconvenient);
(2) purchase securities on margin, except for short-term credit
necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, the
Portfolio may be deemed an underwriter under Federal securities laws
and except to the extent that the purchase of Municipal Obligations
directly from the issuer thereof in accordance with the Portfolio's
investment objective, policies and limitations may be deemed to be an
underwriting;
(4) make short sales of securities or maintain a short position
or write or sell puts, calls, straddles, spreads or combinations
thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development
programs;
24
<PAGE>
(8) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment limitations, the
New York Municipal Money Market Portfolio may not (i) under normal market
conditions, invest less than 80% of its net assets in securities the interest on
which is exempt from the regular Federal income tax and does not constitute an
item of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest"), (ii) invest in private activity bonds where the payment
of principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of Municipal
Obligations; and provided, further, that for the purpose of this limitation
only, private activity bonds that are considered to be issued by
non-governmental users (see the second investment limitation above) shall not be
deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares of the
Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of the
amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the
New York Municipal Money Market Portfolio will meet the following limitation on
its investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the New
York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and to the
exemption of interest thereon from Federal income tax (and, with respect to New
York Municipal Obligations, to the exemption of interest thereon from New York
State and New York City personal income tax) are rendered by bond counsel to the
respective issuers at the time of issuance. Neither the Fund nor its investment
adviser will review the proceedings relating to the issuance of Municipal
Obligations or the basis for such opinions.
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<PAGE>
In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states, the Fund
may make commitments more restrictive than the investment limitations described
above. Should the Fund determine that any such commitment is no longer in its
best interest, it will revoke the commitment and terminate sales of its shares
in the state involved.
26
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman, 48* Director Since 1986, Managing Director and Assistant
466 Lexington Avenue Secretary, E.M. Warburg, Pincus & Co.,
New York, NY 10017 Inc.; Since 1990, Chief Executive Officer and since
1991, Secretary, Counsellors Securities Inc.; Officer
of various investment companies advised by Warburg,
Pincus Counsellors, Inc.
Robert Sablowsky, 58** Director SINCE OCTOBER, 1996, SENIOR VICE PRESIDENT OF
110 Wall Street FAHNESTOCK & CO., INC. 1985 TO 1996, Executive
New York, NY 10005 Vice President of Gruntal & Co., Inc., Director,
Gruntal & Co., Inc.
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.), Mart PMM, Inc. (formerly
Pennsauken Merchandise Mart, Inc.)
(shopping centers); and Since
1975, Director and Executive Vice
President, Cellucap Mfg. Co., Inc.
(manufacturer of disposable
headwear).
Julian A. Brodsky, 63 Director Director, and
Comcast Corporation Vice Chairman,
1234 Market Street 1969 to present; Comcast
16th Floor Corporation; Director,
Philadelphia, PA 19107-3723 Comcast Cablevision of
Philadelphia (cable television
and communications) and Nextel
(Wireless Communications).
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
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 Insurance Co.
Edward J. Roach, 72 President and Treasurer Certified Public
Suite 100 Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania School for
the Deaf; Trustee Emeritus, Immaculata College;
Vice President and
Treasurer of various investment
companies advised by PNC Institutional
Management Corporation.
Morgan R. Jones, 57 Secretary Chairman, the law firm of 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.
- -------------------------
<FN>
* Mr. Reichman is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Counsellors
Securities Inc., the Fund's distributor.
** Mr. Sablowsky is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with a broker-dealer.
[/FN]
</TABLE>
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the Executive
Committee of the Board of Directors. The Executive Committee may generally carry
on and manage the business of the Fund when the Board of Directors is not in
session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of the
Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
28
<PAGE>
The Fund pays directors who are not "affiliated persons" (as that term
is defined in the 1940 Act) of ANY INVESTMENT ADVISER OR SUB-ADVISER OF THE FUND
OR THE DISTRIBUTOR $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 sub-ADVISER to all Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-ADVISER, and the Fund's
custodian, PFPC Inc. ("PFPC"), the Fund's transfer and dividend disbursing
agent, and Counsellors Securities Inc. (the "Distributor"), the Fund's
distributor, the Fund itself requires only one part-time employee. No officer,
director or employee of PIMC, PNC Bank, PFPC or the Distributor currently
receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PIMC and PNC Bank and the fees received by PIMC and PNC
Bank for such services are described in the Prospectus. PIMC renders advisory
services to each of the Portfolios and also renders administrative services to
the Money Market and Government Obligations Money Market Portfolios pursuant to
separate investment advisory agreements, and PNC Bank renders sub-advisory
services to each of the Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER, pursuant to separate sub-advisory
agreements. Each of the Sub-Advisory Agreements is dated August 16, 1988. The
advisory agreements relating to the Money Market and Government Obligations
Money Market Portfolios are each dated August 16, 1988, the advisory agreement
relating to the New York Municipal Money Market Portfolio is dated November 5,
1991 and the advisory agreement relating to the Municipal Money Market Portfolio
is dated April 21, 1992. Such advisory and sub-advisory agreements are
hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER WAIVERS)
$4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO, $190,687
IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY
29
<PAGE>
FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
$268,017 OF ADVISORY FEES WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET
PORTFOLIO. FOR THE YEAR ENDED AUGUST 31, 1995, PIMC received (after waivers)
$2,274,697 in advisory fees with respect to the Money Market Portfolio, $67,752
in advisory fees with respect to the Municipal Money Market Portfolio, $780,122
in advisory fees with respect to Government Obligations Money Market Portfolio
and waived all of the investment advisory fees payable to it of $187,660 with
respect to the New York Municipal Money Market Portfolio. During the same year,
PIMC waived $2,589,882 of advisory fees with respect to the Money Market
Portfolio, $1,041,321 of advisory fees with respect to the Municipal Money
Market Portfolio, $398,363 of advisory fees with respect to the Government
Obligations 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, $7,733 in advisory fees with respect to the Municipal Money
Market Portfolio, $580,435 in advisory fees with respect to Government
Obligations Money Market Portfolio and waived all of the investment advisory
fees payable to it of $193,386 with respect to the New York Municipal Money
Market Portfolio under its Advisory Contract with the Fund. During the same
year, PIMC waived $2,255,986 of advisory fees with respect to the Money Market
Portfolio, $1,091,646 of advisory fees with respect to the Municipal Money
Market Portfolio, $461,938 of advisory fees with respect to the Government
Obligations 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 each Portfolio on an individual basis depends upon
the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically assumed
by PIMC. General expenses of the Fund not readily identifiable as belonging to a
portfolio of the Fund are allocated among all investment portfolios by or under
the direction of the Fund's Board of Directors in such manner as the Board
determines to be fair and equitable. Expenses borne by a portfolio include, but
are not limited to, the following (or a portfolio's share of the following): (a)
the cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by PIMC; (c) expenses of
organizing the Fund that are not attributable to a class of the Fund; (d)
certain of the filing fees and expenses relating to the registration and
qualification of the Fund and a portfolio's shares under Federal and/or state
securities laws and maintaining such registrations and qualifications; (e) fees
and salaries payable to the Fund's directors and officers; (f) taxes (including
any income or franchise taxes) and governmental fees; (g) costs of any liability
and other insurance or fidelity bonds; (h) any costs, expenses or losses arising
out of a liability of or claim for damages or other relief asserted against the
Fund or a portfolio for violation of any law; (i) legal, accounting and auditing
expenses, including legal fees of special counsel for the independent directors;
(j) charges of custodians and other agents; (k) expenses of setting in type and
printing prospectuses, statements of additional information and supplements
thereto for existing shareholders, reports, statements, and confirmations to
shareholders and proxy material that are not attributable to a class; (l) costs
of mailing prospectuses, statements of additional information and supplements
thereto to existing shareholders, as well as
30
<PAGE>
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 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 with respect to the Money Market and Government Obligations Money
Market Portfolios by the shareholders of each Portfolio at a special meeting
held on December 22, 1989, as adjourned. The advisory agreement was approved
with respect to the Municipal Money Market Portfolio by shareholders at a
special meeting held June 10, 1992, as adjourned and the Sub-Advisory Agreement
was approved with respect to the Municipal Money Market Portfolio by shareholder
at a special meeting held on December 22, 1989. The Advisory Contract was
approved with respect to the New York Municipal Money Market Portfolio by the
Portfolio's shareholders at a special meeting of shareholders held November 21,
1991, as adjourned. Each Advisory Contract is terminable by vote of the Fund's
Board of Directors or by the holders of a majority of the outstanding voting
securities of the relevant Portfolio, at any time without penalty, on 60 days'
written notice to PIMC or PNC Bank. Each of the Advisory Contracts may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC
31
<PAGE>
receives a fee of .10% of the average daily net assets of the Municipal Money
Market and New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per Portfolio, exclusive of transaction charges and
out-of-pocket expenses, which are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Bedford Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues and redeems shares of each of the Bedford Classes, (b) addresses
and mails all communications by each Portfolio to record owners of shares of
each such Class, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (c) maintains
shareholder accounts and, if requested, sub-accounts and (d) makes periodic
reports to the Fund's Board of Directors concerning the operations of each
Bedford Class. PFPC may, on 30 days' notice to the Fund, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services to the Fund under the Transfer Agency Agreement, PFPC receives
a fee at the annual rate of $15.00 per account in each Portfolio for orders
which are placed via third parties and relayed electronically to PFPC, and at an
annual rate of $17.00 per account in each Portfolio for all other orders,
exclusive of out-of-pocket expenses and also receives a fee for each redemption
check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional shareholder
servicing agreements ("Shareholder Servicing Agreements") with various dealers
("Authorized Dealers") for the provision of certain support services to
customers of such Authorized Dealers who are shareholders of the Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a distribution
contract, dated as of April 10, 1991, and supplements entered into by the
32
<PAGE>
Distributor and the Fund on behalf of each of the Bedford Classes,
(collectively, the "Distribution Contracts") and separate Plans of Distribution
for each of the Bedford Classes (collectively, the "Plans"), all of which were
adopted by the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act,
the Distributor will use its best efforts to distribute shares of each of the
Bedford Classes. As compensation for its distribution services, the Distributor
will receive, pursuant to the terms of the Distribution Contracts, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus. The Distributor currently proposes to reallow up to
all of its distribution payments to broker/dealers for selling shares of each of
the Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans relating to the Bedford Classes of the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios as amended was most recently approved for
continuation, 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 Plans or any agreements
related to the Plans ("12b-1 Directors"). Each of the Plans relating to the
Bedford Class of the Money Market, Municipal Money Market and Government
Obligations Money Market Portfolios was approved by shareholders of each Bedford
Class at a special meeting of shareholders held December 22, 1989, as adjourned.
The Plan relating to the Bedford Class of the New York Municipal Money Market
Portfolio was approved by shareholders of such Class at a special meeting of
shareholders held November 21, 1991, as adjourned.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Bedford 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 Bedford 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 or period ended August 31, 1996, the Fund paid
distribution fees to the Fund's Distributor under the Plans for the Bedford
Classes of each of the Money Market Portfolio, the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio in the aggregate amounts of $5,826,142,
$1,139,416, $1,091,847 AND $311,822, respectively. Of those amounts $5,582,603,
$1,118,274, $1,072,131 AND $305,581, respectively, was paid to dealers with whom
the Fund's Distributor had entered into dealer agreements, and $243,539,
$21,142, $19,716 AND $6,241, respectively, 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 year, the Distributor waived no distribution fees for any of the
Bedford Classes of the Money Market Portfolio, the Municipal Money Market
Portfolio and the Government Obligations Money Market Portfolio and waived
distribution fees in the aggregate amount of $0 with respect to the Bedford
Class of the New York Municipal Money Market Portfolio. The Fund believes that
such Plans may benefit the Fund by
33
<PAGE>
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. MR.
SABLOWSKY, A DIRECTOR OF THE FUND, HAD AN INDIRECT INTEREST IN THE OPERATION OF
THE PLANS BY VIRTUE OF HIS POSITION AS EXECUTIVE VICE PRESIDENT OF GRUNTAL &
CO., INC., A BROKER-DEALER WHICH SELLS THE FUND'S SHARES.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with remaining
maturities of 397 calendar days or less, except for securities that are subject
to repurchase agreements (which in turn may have maturities of 397 calendar days
or less), and except that each of the Money Market Portfolio, Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio may purchase
variable rate securities with remaining maturities of 397 calendar days or more
so long as such securities comply with conditions established by the SEC under
which they may be considered to have remaining maturities of 397 calendar days
or less. Because all Portfolios intend to purchase only securities with
remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios are made
from dealers, underwriters and issuers; sales are made to dealers and issuers.
None of the Portfolios currently expects to incur any brokerage commission
expense on such transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the security, however, usually
includes a profit to the dealer. Securities purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. When securities are purchased
directly from or sold directly to an issuer, no commissions or discounts are
paid. It is the policy of such Portfolios to give primary consideration to
obtaining the most favorable price and efficient execution of transactions. In
seeking to implement the policies of such Portfolios, PIMC will effect
transactions with those dealers it believes provide the most favorable prices
and are capable of providing efficient executions. In no instance will portfolio
securities be purchased from or sold to the Distributor, PIMC or Provident or
any affiliated person of the foregoing entities except to the extent permitted
by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of commercial
paper or dealers selling commercial paper to consider the repurchase of such
securities from a Portfolio prior to their maturity at their original cost plus
interest (sometimes adjusted to reflect the actual maturity of the securities),
if it believes that a Portfolio's anticipated need for liquidity makes such
action desirable. Any such repurchase prior to maturity reduces the possibility
that the Portfolio would incur a capital loss in liquidating commercial paper
(for which there is no established market), especially if interest rates have
risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by PIMC or PNC Bank are made independently of each other in the light of
differing conditions. However, the same investment decision may occasionally be
made for two or more of such accounts. In such cases,
34
<PAGE>
simultaneous transactions are inevitable. Purchases or sales are then averaged
as to price and allocated as to amount according to a formula deemed equitable
to each such account. While in some cases this practice could have a detrimental
effect upon the price or value of the security as far as a Portfolio is
concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or Provident or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash
payments undesirable, to honor any request for redemption or repurchase of a
Portfolio's shares by making payment in whole or in part in securities chosen by
the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset
value of each of the Portfolios at $1.00 per share. Net asset value per share,
the value of an individual share in a Portfolio, is computed by dividing a
Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE 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, COLUMBUS DAY AND
VETERANS DAY.
35
<PAGE>
The Fund calculates the value of the portfolio securities of each of
the Portfolios by using the amortized cost method of valuation. Under this
method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments,
the Fund may employ outside organizations, which may use a matrix or formula
method that takes into consideration market indices, matrices, yield curves and
other specific adjustments. This may result in the securities being valued at a
price different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and effective
yields are computed using standardized methods required by the SEC. The
annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and
36
<PAGE>
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 ended August 31, 1996 for the
Bedford Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio was 4.51%, 2.81%, 4.42% and 2.63%,
respectively. The effective yield for the same period for the same Classes was
4.61%, 2.85%, 4.52% and 2.66%, respectively. The tax equivalent yield for the
same period for the Bedford Class of the Municipal Money Market Portfolio was
3.90% (assuming an income tax rate of 28%). The tax equivalent yield for the
same period for the Bedford Class of the New York Municipal Money Market
Portfolio was 4.24% (assuming a combined total New York City (8%), New York
State (2%) and Federal (28%) income tax rate of 38%).
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on savings account or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's Investors
Service and Standard & Poor's Corporation represent their respective opinions as
to the quality of the obligations they undertake to rate. Ratings, however, are
general and are not absolute standards of quality. Consequently, obligations
with the same rating, maturity and interest rate may have different market
prices. In addition, subsequent to its purchase by a Portfolio, an issue may
cease to be rated or may have its rating reduced below the minimum required for
purchase. In such an event, PIMC will consider whether a Portfolio should
continue to hold the obligation.
From time to time, in advertisements or in reports to shareholders,
the yields of a Portfolio may be quoted and compared to those of other mutual
funds with similar investment objectives and to stock or other relevant indices.
For example, the yield of a Portfolio may be compared to the Donoghue's Money
Fund Average, which is an average compiled by IBC/Donoghue's MONEY FUND
REPORT(R) of Holliston, MA 01746, a widely recognized independent publication
that monitors the performance of money market funds, or to the data prepared by
Lipper Analytical Services, Inc., a widely-recognized independent service that
monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
37
<PAGE>
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated investment
company under Part I of Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Portfolio is
exempt from Federal income tax on its net investment income and realized capital
gains which it distributes to shareholders, provided that it distributes an
amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement each
Portfolio must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or from other
income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income, "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a partnership or
trust will satisfy the Income Requirement only to the extent such income is
attributable to items of income of the partnership or trust that would satisfy
the Income Requirement if they were realized by a regulated investment company
in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of each
quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer),
38
<PAGE>
and no more than 25% of the value of each Portfolio's total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which such Portfolio controls and which are engaged in the same or
similar trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in informal
rulings issued to other taxpayers, that the issuer of a repurchase agreement is
the bank or dealer from which securities are purchased. The Money Market
Portfolio, Government Obligations Money Market Portfolio and New York Municipal
Money Market Portfolio will not enter into repurchase agreements with any one
bank or dealer if entering into such agreements would, under the informal
position expressed by the Internal Revenue Service, cause any of them to fail to
satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio are designed to provide investors with current tax-exempt
interest income. Exempt interest dividends distributed to shareholders of the
Portfolios are not included in the shareholder's gross income for regular
Federal income tax purposes. In order for the Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio to pay exempt interest dividends
during any taxable year, at the close of each fiscal quarter at least 50% of the
value of each such Portfolio must consist of exempt interest obligations.
All shareholders required to file a Federal income tax return are
required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio may acquire standby
39
<PAGE>
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.
Interest on indebtedness incurred by a shareholder to purchase or
carry shares of the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio is not deductible for income tax purposes if (as
expected) the Municipal Money Market Portfolio or the New York Municipal Money
Market Portfolio distributes exempt interest dividends during the shareholder's
taxable year.
Distributions of net investment income received by a Portfolio from
investments in debt securities (other than interest on tax-exempt Municipal
Obligations that is distributed as exempt interest dividends) and any net
realized short-term capital gains distributed by a Portfolio will be taxable to
shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
While none of the Portfolios expects to realize long-term capital
gains, any net realized long-term capital gains, such as gains from the sale of
debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax Reform
Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal
40
<PAGE>
rate of 39% applies in the case of corporations having taxable income between
$100,000 and $335,000).
If for any taxable year any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on Municipal Obligations in the case of the Municipal Money Market
Portfolio and the New York Municipal Money Market Portfolio) to the extent of
such Portfolio's current and accumulated earning and profits. Such distributions
will be eligible for the dividends received deduction in the case of corporate
shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, no Portfolio anticipates
incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to
the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
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
41
<PAGE>
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, 50 million shares are classified as Class X
Common Stock (U.S. Core Equity), 50 million shares are classified as Class Y
Common Stock (U.S. Core Fixed Income), 50 million shares are classified as Class
Z Common Stock (Global Fixed Income), 50 million shares are classified as Class
AA Common Stock (Municipal Bond), 50 million shares are classified as Class BB
Common Stock (BEA Balanced), 50 million shares are classified as Class CC Common
Stock (Short Duration), 100 million shares are classified as Class DD COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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 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
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<PAGE>
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, Class M Common Stock, Class N Common Stock and Class O Common Stock
constitute the Bedford Classes. Under the Fund's charter, the Board of Directors
has the power to classify or reclassify any unissued shares of Common Stock from
time to time.
The classes of Common Stock have been grouped into SIXTEEN separate
"families": the RBB Family, the Cash Preservation Family, the Sansom Street
Family, the Bedford Family, the Bradford Family, the BEA Family, the Janney
Montgomery Scott Money FAMILY, THE N/I FAMILY, THE BOSTON PARTNERS 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 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 THE THREE NON-MONEY MARKET PORTFOLIOS; THE BOSTON
PARTNERS FAMILY REPRESENTS INTEREST IN ONE NON-MONEY MARKET PORTFOLIO; the
Janney Montgomery Scott Money 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
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<PAGE>
an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a portfolio only if
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent public accountants, the approval of principal
underwriting contracts and the election of directors are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote
of shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, 1735
Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as counsel
to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle & Reath,
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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 11.2
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 12.2
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 15.8
4943 King Arthur Drive
Erie, PA 16506
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
JOHN Robert Estrada and 22.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
ERIC Levine and Linda & Howard Levine 27.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.4
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 7.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 10.8
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
St. Louis, MO 63107
GARY L. LANGE and 15.2
SUSAN D. LANGE JTTEN
13 MUIRFIELD CT NORTH
ST. CHARLES, MO 63309
ANDREW DIEDERICH AND DORIS DIEDERICH 5.9
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR DTD 8/12/91 14.8
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 7.5
428 W. JEFFERSON
KIRKWOOD, MO 63122
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GWENDOYLN HAYNES 5.1
2757 GEYER
ST. LOUIS, MO
SANSOM Street Money Market Portfolio Wasner & Co. 20.1
(Class I) FAO Paine Webber and Managed Assets
Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
SAXON and Co. 73.3
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
ROBERTSON Stephens & Co. 6.5
FBO Exclusive Benefit Investors
C/O ERIC MOORE
555 California STREET/NO. 2600
San Francisco, CA 94101
BRADFORD MUNICIPAL MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
SC JOHNSON & SON, INC. RETIREMENT PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA US Core Fixed Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
Carlisle, KY 40311
ARNOLD Leon 12.5
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station
New York, NY 10008
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
IRWIN Bard 6.2
1750 North East 183rd St. North
Miami Beach, FL 33160
MATTHEW M. SLOVES AND DIANE DECKER SLOVES 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
N/I MICRO CAP FUND CHARLES SCHWAB & CO. INC. 12.8
(Class FF) SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94101
CHASE MANHATTAN BANK 30.5
TRST COLLINS GROUP TRUST
940 NEWPORT CENTER DRIVE
NEWPORT BEACH, CA 92660
CURRIE & CO. 6.4
c/o FIDUCIARY TRUST CO. INTL
P. O. Box 3199
CHURCH STREET STATION
New York, NY 10008
BRUCE FEIZER 5.3
TRST JEF MEMORIAL RANCH ACCOUNT
P.O. Box 117
VICKSBURG, MI 49097
N/I GROWTH FUND CHARLES SCHWAB & CO. INC. 20.7
(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 LP 22.7
C/O ASSET MANAGEMENT ADVISORS INC.
1001 N. US HWY
SUITE 800
JUPITER, FL 33447
BANK OF NEW YORK 10.2
TRST SUNKIST GROWERS INC.
14130 RIVERSIDE DRIVE
SHERMAN OAKS, CA 91423-2392
N/I GROWTH AND VALUE FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 31.6
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
50
<PAGE>
As of such date, no person owned of record or, to the Fund's
knowledge, beneficially, more than 25% of the outstanding shares of 811 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.
51
<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.
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.
A-1
<PAGE>
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
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
11
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
12
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
14
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
-------- ------------
AGENCY OBLIGATIONS--53.8%
FEDERAL FARM CREDIT BANK--8.1%
5.120% 09/04/96(DAGGER) ..................... $ 15,000 $ 14,998,280
5.400% 04/01/97 ............................. 30,000 29,977,099
------------
44,975,379
------------
FEDERAL HOME LOAN BANK--8.1%
5.277% 09/02/96(DAGGER) ..................... 20,000 19,998,784
5.238% 09/20/96(DAGGER) ..................... 15,000 14,999,434
5.560% 10/25/96 ............................. 10,000 9,997,291
------------
44,995,509
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.6%
5.370% 09/03/96(DAGGER) ..................... 10,000 10,000,000
5.410% 09/03/96(DAGGER) ..................... 10,000 9,994,465
5.465% 09/03/96(DAGGER) ..................... 10,000 9,999,787
5.348% 09/06/96(DAGGER) ..................... 20,000 19,992,305
5.337% 09/17/96(DAGGER) ..................... 20,000 19,990,167
5.310% 10/18/96 ............................. 15,000 14,996,237
5.320% 11/21/96(DAGGER) ..................... 25,000 24,992,910
5.270% 11/26/96 ............................. 20,000 19,748,211
5.530% 01/10/97 ............................. 15,000 14,698,154
5.240% 01/15/97 ............................. 15,000 14,703,067
------------
159,115,303
------------
STUDENT LOAN MARKETING ASSOCIATION(DAGGER)--9.0%
5.400% 09/03/96 ............................. 9,000 8,998,786
5.410% 09/03/96 ............................. 5,000 5,000,000
5.420% 09/03/96 ............................. 5,000 4,999,414
5.460% 09/03/96 ............................. 15,000 14,996,128
5.585% 09/03/96 ............................. 3,850 3,851,055
5.610% 09/03/96 ............................. 12,100 12,105,327
------------
49,950,710
------------
TOTAL AGENCY OBLIGATIONS
(Cost $299,036,901) ..................... 299,036,901
------------
PAR
(000) VALUE
------- ------------
U. S. TREASURY OBLIGATIONS--7.2%
U.S. TREASURY NOTES--7.2%
6.875% 02/28/97 ...................... $20,000 $ 20,159,607
6.875% 03/31/97 ...................... 10,000 10,075,608
6.500% 04/30/97 ...................... 10,000 10,050,993
------------
TOTAL U. S. TREASURY
OBLIGATIONS
(Cost $40,286,208) ............... 40,286,208
------------
REPURCHASE AGREEMENTS--38.5%
Aubrey G. Lanston & Co. Inc.
5.200% 09/03/96 ...................... 92,000 92,000,000
(Agreement dated 08/30/96 to be
repurchased at $92,053,156,
collateralized by $44,562,500
U.S. Treasury Bond 6.25% due
08/15/23 and collateralized by
$47,439,700 U.S. Treasury
Notes 7.75% to 8.50% due
12/31/99 to 11/15/00. Market
value of collateral is $92,002,200.)
Donaldson, Lufkin & Jenrette
5.310% 09/03/96 ...................... 102,200 102,200,000
(Agreement dated 08/30/96 to be
repurchased at $102,260,298,
collateralized by $110,810,000
Federal Home Loan Mortgage
Corp. due 08/15/26
Market value of collateral is
$105,270,608.)
Morgan Stanley & Co.
5.270% 09/20/96 ...................... 20,000 20,000,000
(Agreement dated 08/22/96 to be
repurchased at 20,084,906,
collateralized by $25,860,948
Federal Home Loan Mortgage
Corp. 0% to 8.00% due 12/01/09 to
06/15/35. Market value of collateral
is $20,405,022.)
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,200,000) .............. 214,200,000
------------
See Accompanying Notes to Financial Statements.
15
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.5%
(COST $553,523,109*).................. $553,523,109
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5%.................. 3,023,896
------------
NET ASSETS (Applicable to
192,603,016 Bedford shares,
57,191,735 Bradford shares,
306,763,729 Janney Montgomery
Scott shares and 800 other
shares)--100%......................... $556,547,005
============
NET ASSET VALUE, offering and
redemption price per share
($556,547,005 (DIVIDE) 556,559,280)... $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Obligations -- The interest rate is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount shown can be
recovered through demand.
See Accompanying Notes to Financial Statements.
16
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MUNICIPAL BONDS--99.7%
NEW YORK--96.5%
Chautauqua County IDA (The Red Wing
Company, Inc.) Series 1985 DN /
(Wachovia LOC)(DAGGER)
3.400% 09/05/96 ............................ $2,000 $2,000,000
City of New York Eagle Tax Exempt
Bonds DN [SP1+](DAGGER)
3.560% 09/05/96 ............................ 1,000 1,000,000
City of New York GO Bonds DN
Series D / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 1,200 1,200,000
City of New York Housing Development
Corp. (Parkgate Tower) Resolution 1
DN Series 1995 (Citibank LOC)
[A-1, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 2,155 2,155,000
Hempstead USFD TAN Series 1996
4.125% 06/30/97 ............................ 3,000 3,005,366
Lancaster Central School District TAN
Series 1996
4.250% 06/27/97 ............................ 2,000 2,005,504
Metropolitan Transportation Authority
Commuter Facility Series 1991 DN /
(Multiple Credit Enhancements LOC)
[A-1, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 300 300,000
Montgomery Town IDA DN (Service
Merchandise Co. Project) / (Canadian
Imperial Bank of Commerce LOC) [A-1](DAGGER)
3.700% 09/16/96 ............................ 1,300 1,300,000
New York GO Tax Exempt Adjustable
Rate Bonds Series 1996 J TECP /
(Commerce Bank LOC) [A-1+, MIG]
3.500% 09/13/96 ............................ 2,000 2,000,000
New York City GO Bonds DN /
(Mitsubishi Bank LOC)
[A-1+0, VMIG-1](DAGGER)
3.400% 09/07/96 ............................ 1,000 1,000,000
New York City GO Bonds Fiscal 1995
Series F-7 DN / (Union Bank of
Switzerland LOC) [A-1+, P-1](DAGGER)
3.400% 09/07/96 ............................ 200 200,000
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York City GO 1994 H-3 TECP /
(Banque Paribas LOC) [A-1,
VMIG-1](DAGGER)
3.750% 09/05/96 ............................ $ 1,000 $1,000,000
New York City GO Series 1995
F-4 DN / (Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.400% 09/07/96 ............................ 2,100 2,100,000
New York City GO Series 1994 B DN /
(Morgan Guaranty LOC) [A-1,
VMIG-1](DAGGER)
4.000% 09/03/96 ............................ 400 400,000
New York City GO Series B-9 TECP /
(Chemical Bank LOC) [A-1, VMIG-1]
3.600% 10/11/96 ............................ 1,100 1,100,000
New York City Housing Development
Corp. Multi-Family Mortgage RB
(York Avenue Development Project)
Series 1994 A DN / (Chemical Bank
LOC) [A-1](DAGGER)
3.500% 09/07/96 ............................ 3,400 3,400,000
New York City IDA (Laguardia Airport
Project) DN / (Banque Indosuez LOC)
[A-1](DAGGER)
3.300% 09/07/96 ............................ 1,200 1,200,000
New York City IDA RB DN (Field Hotel
Project) (JFK Airport) / (Banque
Indosuez LOC) [A-1, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 600 600,000
New York City IDA RB (Japan Airlines Co.)
DN / (Morgan Guaranty LOC) [A-1+](DAGGER)
3.900% 09/03/96 ............................ 300 300,000
New York City IDA RB DN Series V
(Premier Sleep Project) /
(ABM-AMRO Bank LOC)
[VMIG-1](DAGGER)
3.350% 09/07/96 ............................ 1,000 1,000,000
New York City IDA RB DN Series X
(Spreading Machine Exchange
Project) / (ABM-AMRO Bank LOC)
[P-1](DAGGER)
3.350% 09/07/96 ............................ 750 750,000
New York City Municipal Water Authority
DN / (FGIC Insurance) [A-1+, VMIG-1](DAGGER)
3.800% 09/01/96 ............................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
17
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York State Dormitory Authority
Memorial Sloan-KetteringCancer
Center RB 1989B TECP (Chemical
Bank LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.600% 10/25/96 ......................... $ 2,450 $2,450,000
New York City Museum of Broadcasting
DN Series 1989 / (Sumitomo Bank
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 1,300 1,300,000
New York Local Govt. Assistance Corp.
RB DN / (Society General LOC)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 1,000 1,000,000
New York Local Govt. Assistance Corp.
RB DN / (Canadian Imperial Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 3,500 3,500,000
New York State Dormitory Authority
RB MB (Beverwyck Inc.) / (Banque
Paribas LOC) [A-2, VMIG-1](DAGGER)
3.400% 09/04/96 ......................... 1,040 1,040,000
New York State Dormitory Authority
RB DN (The Metropolitan Museum of
Art Project) [SP-1+, VMIG-1](DAGGER)
3.100% 09/04/96 ......................... 4,400 4,400,000
New York State Energy Research &
Development (Niagara Mohawk)
Series 1988 A DN / (Morgan
Guaranty LOC)(DAGGER)
4.050% 09/01/96 ......................... 700 700,000
New York State Energy Research &
Development Authority Electric
Facilities RB 1995 Series A DN (Long
Island Lighting Co. Project) / (Union
Bank of Switzerland LOC) [VMIG-1](DAGGER)
3.250% 09/07/96 ......................... 2,000 2,000,000
New York State Energy Research &
Development Authority PCR DN
(Central-Hudson Gas and Electric
Corp.) Series 1985 A / (Morgan
Guaranty LOC) [P-1](DAGGER)
3.150% 09/07/96 ......................... 1,700 1,700,000
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York State Energy Research &
Development Authority PCR RB DN
(Rochester Gas & Electric Project) /
(Credit Suisse LOC) [P-1](DAGGER)
3.550% 09/07/96 .......................... $ 3,500 $3,500,000
New York State Energy Research &
Development Authority PCR RB MB
(Long Island Lighting Co. Project)/
(Deutshe Bank LOC) [VMIG-1](DOUBLE DAGGER)
3.250% 03/01/97 .......................... 1,500 1,500,000
New York State Energy Research &
Development Authority Series 1987
B PCR (Niagara Mohawk) DN /
(Morgan Guaranty LOC) [A-1+](DAGGER)
4.050% 09/01/96 .......................... 300 300,000
New York State Energy Research &
Development Electric Facilities
RB DN 1993 Series B (Long Island
Lighting Co. Project) / (Toronto
Dominion LOC) [VMIG-1](DAGGER)
3.250% 09/07/96 .......................... 500 500,000
New York State Energy Research &
Development Authority DN
Series 1985 A (Niagara Mohawk) /
(Toronto Dominion LOC) [A-1](DAGGER)
3.950% 09/01/96 .......................... 1,100 1,100,000
New York State GO TECP
Series S [A-1, P-1]
3.550% 10/09/96 .......................... 3,000 3,000,000
New York State Housing Finance
Agency (Normandie Court I Project)
Series 1991 DN / (Society General
LOC) [A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 .......................... 1,100 1,100,000
New York State Housing Finance
Agency DN Series A (Mount Sinai
School of Medicine) / (Sanwa Bank
LOC) [VMIG-1](DAGGER)
3.650% 09/04/96 .......................... 3,800 3,800,000
New York State Housing Finance Agency
Multi-Family Mortgage RB DN (Pleasant
Creek Meadows Project) /
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 .......................... 400 400,000
See Accompanying Notes to Financial Statements.
18
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York State Housing Finance Agency
Sloan Kettering 1985 A DN / (Morgan
Guaranty LOC) [A-1+](DAGGER)
3.250% 09/07/96 .......................... $ 500 $ 500,000
New York State Job Development
Authority DN Series 1984 D1 to D9 /
(Sumitomo Bank LOC) [A-1+,
VMIG-1](DAGGER)
3.700% 09/03/96 .......................... 65 65,000
New York State Job Development
Authority DN Series 1989 B1 To
B21 [VMIG-1](DAGGER)
3.850% 09/01/96 .......................... 800 800,000
New York State Job Development
Authority DN Special Purpose Bonds
Series 1984 G1 to G33 / (Sumitomo
Bank LOC) [A-1+, VMIG-1](DAGGER)
3.700% 09/03/96 .......................... 145 145,000
New York State Job Development
Authority DN Special Purpose
Series 1986 A1 to A14 / (Sumitomo
Bank LOC) [A-1+, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 500 500,000
New York State Job Development
DN Special Purpose Series C /
(Sumitomo Bank LOC) [A-1+, VMIG-1](DAGGER)
3.700% 09/03/96 .......................... 880 880,000
New York State Medical Care Facility
Financial Agency (Lenox Hill Hospital
Project) Series 1990 A DN / (Chemical
Bank LOC) [VMIG-1](DAGGER)
3.250% 09/07/96 .......................... 1,500 1,500,000
New York State Power Authority TECP /
(Citibank LOC) [A-1, P-1]
3.650% 12/09/96 .......................... 3,000 3,000,000
New York State Power MB [A-1,
VMIG-1](DOUBLE DAGGER)
3.250% 09/01/96 .......................... 1,500 1,500,000
Sachem Central School District at
Holbrook Suffolk County TAN
Series 1996-97 MB [MIG-1]
4.125% 06/26/97 .......................... 2,000 2,004,717
State of New York TECP
Series R [A-1, P-1]
3.400% 10/01/96 .......................... 1,000 1,000,000
PAR
(000) VALUE
------ -----------
NEW YORK--(CONTINUED)
Suffolk County IDA DN (Nissequogue
Cogen) Series 1994 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.250% 09/04/96 ...................... $3,700 $ 3,700,000
Suffolk County Water Authority
BAN DN 1994 [A-1, VMIG-1](DAGGER)
3.150% 09/04/96 ...................... 3,000 3,000,000
The Trust for Cultural Resources of the
New York Bond (Carnegie Hall) Series
1990 DN / (Dai-ichi Kangyo LOC)
[Aa1](DAGGER)
3.300% 09/07/96 ...................... 100 100,000
Tompkins County BAN
4.250% 06/19/97 ...................... 3,000 3,009,424
Triborough Bridge and Tunnel Authority
DN / (FGIC Insurance) [A-1+,
VMIG-1](DAGGER)
3.200% 09/07/96 ...................... 1,100 1,100,000
-----------
85,110,011
-----------
PUERTO RICO--3.2%
Puerto Rico Government Development
Bank TECP [A-1+]
3.400% 09/16/96 ...................... 2,000 2,000,000
Puerto Rico Highway and Transportation
Authority Series 1993 X DN / (Multiple
Credit Enhancements LOC)
[A-1+, VMIG-1](DAGGER)
3.100% 09/07/96 ...................... 600 600,000
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) RB DN /
(Bank of Tokyo LOC)(DAGGER)
3.550% 09/07/96 ...................... 200 200,000
-----------
2,800,000
-----------
See Accompanying Notes to Financial Statements.
19
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
-----------
TOTAL INVESTMENTS AT VALUE--99.7%
(Cost $87,910,011*) ................ $87,910,011
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.3% .............. 238,802
-----------
NET ASSETS (Applicable to 68,128,708
Bedford shares, 20,031,916 Janney
Montgomery Scott shares and
800 other shares)--100.0% .......... $88,148,813
===========
NET ASSET VALUE, offering and
redemption price per share
($88,148,813 (DIVIDE) 88,161,424) .. $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the next
readjustment date or the date the principal amount shown can be
recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date shown is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not not been audited by the Independent Accountants and,
therefore, are not covered by the Report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB .........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
20
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment Income
Interest ............................................. $118,092,977 $15,900,230 $30,707,263 $2,738,330
------------ ----------- ----------- ----------
Expenses
Investment advisory fees ............................. 7,702,090 1,409,660 2,310,433 270,726
Administration fees .................................. -- 428,209 -- 77,350
Distribution fees .................................... 9,304,376 2,427,986 3,236,194 409,287
Service organization fees ............................ 471,499 -- -- --
Directors' fees ...................................... 38,473 7,715 10,037 1,421
Custodian fees ....................................... 345,973 88,191 102,930 24,220
Transfer agent fees .................................. 3,044,149 291,739 610,887 95,023
Legal fees ........................................... 77,139 17,721 20,228 3,131
Audit fees ........................................... 61,049 12,514 16,044 2,230
Registration fees .................................... 434,000 192,999 134,940 13,500
Insurance expense .................................... 43,932 9,056 11,658 1,631
Printing fees ........................................ 426,220 72,100 107,852 8,755
Miscellaneous ........................................ 1,884 387 499 70
------------ ----------- ----------- ----------
21,950,784 4,958,277 6,561,702 907,344
Less fees waived ..................................... (3,543,632) (1,236,642) (671,811) (278,163)
Less expense reimbursement by advisor ................ (342,158) (17,576) (406,954) --
------------ ----------- ----------- ----------
Total expenses .................................. 18,064,994 3,704,059 5,482,937 629,181
------------ ----------- ----------- ----------
Net investment income ................................ 100,027,983 12,196,171 25,224,326 2,109,149
------------ ----------- ----------- ----------
Realized loss on investments ......................... (12,987) (674) (10,995) (5)
------------ ----------- ----------- ----------
Net increase in net assets resulting from operations . $100,014,996 $12,195,497 $25,213,331 $2,109,144
============ =========== =========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income ........ $100,027,983 $64,913,329 $12,196,171 $9,691,756
Net gain (loss)
on investments ............. (12,987) (18,463) (674) 7,009
-------------- -------------- ------------ ------------
Net increase in net assets
resulting from
operations ................. 100,014,996 64,894,866 12,195,497 9,698,765
-------------- -------------- ------------ ------------
Distributions to shareholders:
Dividends to shareholders
from net investment income:
Bedford shares ............. (49,874,649) (38,765,552) (5,960,711) (5,717,451)
Bradford Shares ............ -- -- (3,611,114) (3,266,535)
Cash Preservation
shares ................... (10,092) (11,336) (3,746) (5,648)
Janney Montgomery
Scott shares ............. (24,434,566) (4,784,092) (2,620,457) (701,975)
RBB shares ................. (2,630) (2,530) (143) (147)
Sansom Street shares ....... (25,706,046) (21,349,819) -- --
Dividends to shareholders from
net realized short-term gains:
Bedford shares ............. -- -- -- --
Bradford shares ............ -- -- -- --
Janney Montgomery
Scott shares ............. -- -- -- --
-------------- -------------- ------------ ------------
Total distributions
to shareholders ........ (100,027,983) (64,913,329) (12,196,171) (9,691,756)
-------------- -------------- ------------ ------------
Net capital share
transactions ................. 374,464,737 736,630,198 (1,864,843) 140,043,103
-------------- -------------- ------------ ------------
Total increase (decrease)
in net assets ................ 374,451,750 736,611,735 (1,865,517) 140,050,112
Net Assets:
Beginning of year ............ 1,821,371,688 1,084,759,953 422,753,863 282,703,751
-------------- -------------- ------------ ------------
End of year .................. $2,195,823,438 $1,821,371,688 $420,888,346 $422,753,863
============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income ........ $25,224,326 $12,855,095 $2,109,149 $1,540,989
Net gain (loss)
on investments ............. (10,995) 41,241 (5) (89)
------------ ------------ ----------- -----------
Net increase in net assets
resulting from
operations ................. 25,213,331 12,896,336 2,109,144 1,540,900
------------ ------------ ----------- -----------
Distributions to shareholders:
Dividends to shareholders
from net investment income:
Bedford shares ............. (8,829,111) (7,551,189) (1,686,204) (1,455,172)
Bradford Shares ............ (2,208,959) (2,071,772) -- --
Cash Preservation
shares ................... -- -- -- --
Janney Montgomery
Scott shares ............. (14,186,256) (3,232,134) (422,945) (85,817)
RBB shares ................. -- -- -- --
Sansom Street shares ....... -- -- -- --
Dividends to shareholders from
net realized short-term gains:
Bedford shares ............. (12,697) -- -- --
Bradford shares ............ (3,154) -- -- --
Janney Montgomery
Scott shares ............. (18,204) -- -- --
------------ ------------ ----------- -----------
Total distributions
to shareholders ........ (25,258,381) (12,855,095) (2,109,149) (1,540,989)
------------ ------------ ----------- -----------
Net capital share
transactions ................. 44,099,699 306,300,108 13,146,285 22,779,960
------------ ------------ ----------- -----------
Total increase (decrease)
in net assets ................ 44,054,649 306,341,349 13,146,280 22,779,871
Net Assets:
Beginning of year ............ 512,492,356 206,151,007 75,002,533 52,222,662
------------ ------------ ----------- -----------
End of year .................. $556,547,005 $512,492,356 $88,148,813 $75,002,533
============ ============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ............... 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations .................... 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) .......................... (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital
gains) ........................... -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions ............ (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return ........................ 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ..... $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets ....................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets ............ 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income ............... 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations .................... 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) .......................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital
gains) ........................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............ (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ........................ 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ..... $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets ....................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets ............ 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ............. 0.0458 0.0475 0.0270 0.0231 0.0375
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment
operations .................... 0.0458 0.0475 0.0270 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ......................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from capital
gains) ........................... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions ............ (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ........................ 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios /Supplemental Data
Net assets, end of year (000) ..... $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average
net assets ....................... .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income
to average net assets ............ 4.58% 4.75% 2.70% 2.31% 3.75%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ............. 0.0278 0.0290 0.0198 0.0234 0.0300
Net gains on securities (both
realized and unrealized) ......... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations .................... 0.0278 0.0290 0.0198 0.0234 0.0300
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ......................... (0.0278) (0.0290) (0.0198) (0.0234) (0.0300)
Distributions (from capital
gains) ........................... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............ (0.0278) (0.0290) (0.0198) (0.0234) (0.0300)
-------- -------- -------- -------- --------
Net asset value, end of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ........................ 2.83% 2.94% 2.00% 2.37% 3.04%
Ratios /Supplemental Data
Net assets, end of year (000) ..... $68,116 $60,330 $52,222 $55,677 $40,751
Ratios of expenses to average
net assets ....................... .78%(a) .76%(a) .50%(a) .14%(a) .33%(a)
Ratios of net investment income
to average net assets ............ 2.78% 2.90% 1.98% 2.34% 3.00%
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Government Obligations Money Market Portfolio
would have been 1.10%, 1.13%, 1.17%, 1.18% and 1.12% for the years ended
August 31, 1996, 1995, 1994, 1993 and 1992, respectively. For the New York
Municipal Money Market Portfolio, the ratios of expenses to average net
assets would have been 1.14%, 1.22%, 1.20%, 1.20% and 1.22% for the years
ended August 31, 1996, 1995, 1994, 1993 and 1992, respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
24
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family and the Bradford Family.
The Bedford Family represents interests in four portfolios, which are covered in
this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) NEW YORK MUNICIPAL OBLIGATIONS -- Certain New York state and
New York City municipal obligations in the New York Municipal Money Market
Portfolio may be obligations of issuers which rely in whole or in part on
New York state or New York City revenues, real property taxes, revenues
from health care institutions, or obligations secured by mortgages on real
property. Consequently, the possible effect of economic conditions in New
York or of changes in New York regulations on these obligations must be
considered.
G) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
25
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corp. ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group, Inc.,
which is in turn a wholly-owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for the four portfolios described
herein. PNC Bank serves as the sub-advisor for the Money Market, the Municipal
Money Market and the Government Obligations Money Market Portfolios. The New
York Municipal Money Market Portfolio has no sub-advisor.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on a portfolio's average daily net
assets:
PORTFOLIO ANNUAL RATE
--------------------------- ---------------------------------------------
Money Market and Government .45% of first $250 million of net assets;
Obligations Money Market .40% of next $250 million of net assets;
Portfolios .35% of net assets in excess of $500 million.
Municipal Money Market and .35% of first $250 million of net assets;
New York Municipal Money .30% of next $250 million of net assets;
Market Portfolios .25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
four investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ----------- ----------
<S> <C> <C> <C>
Money Market Portfolio $7,702,090 $(3,527,715) $4,174,375
Municipal Money Market Portfolio 1,409,660 (1,218,973) 190,687
Government Obligations Money Market Portfolio 2,310,433 (671,811) 1,638,622
New York Municipal Money Market Portfolio 270,726 (268,017) 2,709
</TABLE>
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
26
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the four
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- --------- ---------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $ 1,658,468 $ -- $ 1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
----------- --------- -----------
Total Money Market Portfolio $ 3,044,149 $ (15,917) $ 3,028,232
=========== ========= ===========
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
----------- --------- -----------
Total Municipal Money Market Portfolio $ 291,739 $ (17,669) $ 274,070
=========== ========= ===========
Government Obligations Money Market Portfolio
Bedford Class $ 81,107 $ -- $ 81,107
Bradford Class 11,935 -- 11,935
Janney Montgomery Scott Class 517,845 -- 517,845
----------- --------- -----------
Total Government Obligations Money Market Portfolio $ 610,887 $ -- $ 610,887
=========== ========= ===========
New York Municipal Money Market Portfolio
Bedford Class $ 68,044 $ -- $ 68,044
Janney Montgomery Scott Class 26,979 -- 26,979
----------- --------- -----------
Total New York Municipal Money Market Portfolio $ 95,023 $ -- $ 95,023
=========== ========= ===========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
and New York Municipal Money Market Portfolios. The administration fee is
computed daily and payable monthly at an annual rate of .10% of each Portfolio's
average daily net assets. PFPC may, at its discretion, voluntarily waive all or
any portion of its administration fee for a Portfolio. For the year ended August
31, 1996, administration fees and waivers for the two portfolios were as
follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
-------------- -------------- --------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $ 428,209 $ -- $ 428,209
New York Municipal Money Market Portfolio 77,350 (10,146) 67,204
</TABLE>
27
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
The Fund, on behalf of each class of shares within the four investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott and RBB Classes and up to .20% on an
annualized basis for the Sansom Street Class.
For the year ended August 31, 1996, distribution fees for each class within
the four investment portfolios were as follows:
DISTRIBUTION
FEE
------------
Money Market Portfolio
Bedford Class $ 5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
-----------
Total Money Market Portfolio $ 9,304,376
===========
Municipal Money Market Portfolio
Bedford Class $ 1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
-----------
Total Municipal Money Market Portfolio $ 2,427,986
===========
Government Obligations Money Market Portfolio
Bedford Class $ 1,091,847
Bradford Class 275,120
Janney Montgomery Scott Class 1,869,227
-----------
Total Government Obligations Money Market Portfolio $ 3,236,194
===========
New York Municipal Money Market Portfolio
Bedford Class $ 311,822
Janney Montgomery Scott Class 97,465
-----------
Total New York Municipal Money Market Portfolio $ 409,287
===========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
28
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET
MONEY MARKET PORTFOLIO PORTFOLIO
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277 $ 1,022,457,772 $ 1,104,088,188
Bradford Class -- -- 479,401,891 474,166,249
Cash Preservation Class 122,344 84,527 171,907 175,548
Janney Montgomery
Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881
RBB Class 584,206 31,504 69,480 5,004
Sansom Street Class 2,191,596,362 1,864,628,110 -- --
Shares issued in
reinvestment of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408
Bradford Class -- -- 3,506,714 3,126,860
Cash Preservation Class 10,084 11,226 3,515 5,478
Janney Montgomery
Scott Class 24,077,173 4,534,944 2,602,869 662,565
RBB Class 2,625 2,500 143 146
Sansom Street Class 18,389,361 16,689,941 -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142)
Bradford Class -- -- (464,445,579) (466,448,018)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601)
Janney Montgomery
Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391)
RBB Class (580,821) (23,917) (69,419) (5,072)
Sansom Street Class (2,127,237,313) (1,813,444,951) -- --
--------------- --------------- --------------- ---------------
Net increase (decrease) $ 374,464,737 $ 736,630,198 $ (1,864,843) $ 140,043,103
=============== =============== =============== ===============
Bedford Shares authorized 1,500,000,000 1,500,000,000 500,000,000 500,000,000
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $ 663,889,198 $ 461,728,190 $ 449,311,267 $ 503,711,090
Bradford Class 180,761,217 192,414,935 -- --
Cash Preservation Class -- -- -- --
Janney Montgomery
Scott Class 1,160,250,876 533,143,649 81,817,923 32,643,504
RBB Class -- -- -- --
Sansom Street Class -- -- -- --
Shares issued in
reinvestment of dividends:
Bedford Class 8,793,104 7,147,384 1,674,883 1,425,782
Bradford Class 2,158,629 2,029,050 -- --
Cash Preservation Class -- -- -- --
Janney Montgomery
Scott Class 14,080,097 3,065,158 414,118 78,024
RBB Class -- -- -- --
Sansom Street Class -- -- -- --
Shares repurchased:
Bedford Class (643,470,937) (471,908,601) (443,200,310) (497,028,383)
Bradford Class (172,234,746) (187,671,346) -- --
Cash Preservation Class -- -- -- --
Janney Montgomery
Scott Class (1,170,127,739) (233,648,311) (76,871,596) (18,050,057)
RBB Class -- -- -- --
Sansom Street Class -- -- -- --
-------------- ------------- ------------- -------------
Net increase (decrease) $ 44,099,699 $ 306,300,108 $ 13,146,285 $ 22,779,960
============== ============= ============= =============
Bedford Shares authorized 500,000,000 500,000,000 500,000,000 500,000,000
============== ============= ============= =============
</TABLE>
29
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Capital paid-in
Bedford Class $1,109,351,734 $202,009,609 $192,603,016 $68,128,708
Bradford Class -- 129,398,582 57,191,735 --
Cash Preservation Class 202,360 115,765 -- --
Janney Montgomery Scott Class 561,873,247 89,426,172 306,763,729 20,031,916
RBB Class 61,412 5,143 -- --
Sansom Street Class 524,367,399 -- -- --
Other Classes 800 800 800 800
Accumulated net realized gain (loss)
on investments
Bedford Class (17,400) (69,803) (4,248) (12,592)
Bradford Class -- 339 (1,261) --
Cash Preservation Class (3) 5 -- --
Janney Montgomery Scott Class (7,821) 1,734 (6,766) (19)
RBB Class (1) -- -- --
Sansom Street Class (8,289) -- -- --
-------------- ------------ ------------ -----------
$2,195,823,438 $420,888,346 $556,547,005 $88,148,813
============== ============ ============ ===========
</TABLE>
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $33,513 in the Money Market Portfolio of which $2,062
expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004; $67,725 in
the Municipal Money Market Portfolio of which $55,760 expires in 1999, $444
expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002 and $674 expires
in 2004; $12,275 in the Government Obligations Money Market Portfolio which
expires in 2004; and $12,611 in the New York Municipal Money Market Portfolio of
which $10,939 expires in 1998, $1,256 expires in 1999, $322 expires in 2002, $89
expires in 2003 and $5 expires in 2004.
30
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Money Market Portfolio: Cash Preservation, Janney Montgomery
Scott and RBB and Sansom Street. The Fund currently offers four other classes of
shares representing interests in the Municipal Money Market Portfolio: Bradford,
Cash Preservation, Janney Montgomery Scott and RBB. The Fund currently offers
two other classes of shares representing interests in the Government Obligations
Money Market Portfolio: Bradford and Janney Montgomery Scott. The Fund currently
offers one other class of shares representing an interest in the New York
Municipal Money Market Portfolio: Janney Montgomery Scott. Each class is
marketed to different types of investors. Financial Highlights of the RBB and
Cash Preservation Classes are not presented in this report due to their
immateriality. Such information is available in the annual reports of each
respective family. The financial highlights of certain of the other classes are
as follows:
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ----------
Income from investment operations:
Net investment income ................. 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities
(both realized and unrealized) ...... -- -- -- -- 0.0009
-------- -------- -------- -------- ----------
Total from investment operations .... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- ----------
Less distributions
Dividends (from net investment income) .. (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) ...... -- -- -- -- (0.0009)
-------- -------- -------- -------- ----------
Total distributions ................. (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- ----------
Net asset value, end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ----------
Total Return ............................ 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ....... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average net assets .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income to
average net assets .................. 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively and 1.15% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
31
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- --------- ---------
Income from investment operations:
Net investment income................... 0.0288 0.0297 0.0195 0.0195 0.0154
---------- ---------- ---------- --------- ---------
Total from investment operations...... 0.0288 0.0297 0.0195 0.0195 0.0154
---------- ---------- ---------- --------- ---------
Less distributions
Dividends (from net investment income).. (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
---------- ---------- ---------- --------- ---------
Total distributions................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
---------- ---------- ---------- --------- ---------
Net asset value, end of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========= =========
Total Return.............................. 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000)......... $129,399 $110,936 $100,089 $76,975 $69,586
Ratios of expenses to average
net assets............................ .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets.................... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
32
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
--------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income ........ 0.0465 0.0112 0.0278 0.0063
---------- ---------- ---------- ----------
Total from investment
operations ............. 0.0465 0.0112 0.0278 0.0063
---------- ---------- ---------- ----------
Less distributions
Dividends (from net
investment income) ......... (0.0465) (0.0112) (0.0278) (0.0063)
---------- ---------- ---------- ----------
Total distributions ...... (0.0465) (0.0112) (0.0278) (0.0063)
---------- ---------- ---------- ----------
Net asset value,
end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total Return.................. 4.76% 5.30%(b) 2.81% 2.87%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) ............. $561,865 $443,645 $89,428 $113,226
Ratios of expenses
to average
net assets ............... 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets ............... 4.65% 5.04%(b) 2.78% 2.83%(b)
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 9, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ----------
Income from investment
operations:
Net investment income ........ 0.0456 0.0109 0.0262 0.0062
---------- ---------- ---------- ----------
Total from investment
operations ............. 0.0456 0.0109 0.0262 0.0062
---------- ---------- ---------- ----------
Less distributions
Dividends (from net
investment income) ......... (0.0456) (0.0109) (0.0262) (0.0062)
---------- ---------- ---------- ----------
Total distributions ...... (0.0456) (0.0109) (0.0262) (0.0062)
---------- ---------- ---------- ----------
Net asset value,
end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ==========
Total Return.................. 4.66% 5.03%(b) 2.65% 2.72%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) ............. $306,757 $302,585 $20,032 $14,671
Ratios of expenses
to average
net assets ............... 1.00%(a) 1.00%(a)(b) .93%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets ............... 4.56% 4.91%(b) 2.62% 2.68%(b)
<FN>
(a) Without the waiver of advisory and administration fees and without the reimbursement of certain operating expenses,
the ratios of expenses to average net assets for the Money Market Portfolio would have been 1.23% for the year ended
August 31, 1996 and 1.23% annualized for the period ended August 31, 1995. For the Municipal Money Market Portfolio,
the ratio of expenses to average net assets would have been 1.23% for the year ended August 31, 1996 and 1.30%
annualized for the period ended August 31, 1995. For the Government Obligations Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.25% for the year ended August 31, 1996 and 1.28% annualized for the
period ended August 31, 1995. For the New York Municipal Money Market Portfolio, the ratio of expenses to average
net assets would have been 1.29% for the year ended August 31, 1996 and 1.41% annualized for the period ended August
31, 1995.
(b) Annualized.
</FN>
</TABLE>
33
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income..................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities
(both realized and unrealized)........... -- -- -- -- 0.0007
---------- ---------- ---------- ---------- ----------
Total from investment operations....... 0.0518 0.0543 0.0334 0.0304 0.0442
---------- ---------- ---------- ---------- ----------
Less distributions
Dividends (from net investment income).... (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains)........ -- -- -- -- (0.0007)
---------- ---------- ---------- ---------- ----------
Total distributions.................... (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return................................ 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year................... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets.. .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to
average net assets....................... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
34
<PAGE>
===================================================
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.
- ---------------------------------------------------
CONTENTS
PAGE
Introduction ............................... 2
Financial Highlights ....................... 4
Investment Objectives and Policies ......... 8
Purchase and Redemption of Shares .......... 17
Management ................................. 21
Distribution of Shares ..................... 23
Dividends and Distributions ................ 24
Taxes ...................................... 25
Description of Shares ...................... 26
Other Information .......................... 27
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
===================================================
<PAGE>
THE BEDFORD FAMILY
OF
THE RBB FUND, INC.
The three classes of common stock (each, a "Bedford Class") of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company, offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio and a U.S. Government obligations money market
portfolio (collectively, the "Portfolios"). The investment objectives of each
investment portfolio described in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of principal.
It seeks to achieve such objective by investing in a diversified portfolio of
U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular Federal
income tax but which may constitute an item of tax preference for purposes of
the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in
short-term U.S. Treasury bills, notes and other obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
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. INVESTMENT'S IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
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 Portfolios and
custodian for the Fund and PFPC Inc. serves as the administrator of the
Municipal Money Market Portfolio and 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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the three classes of the Fund's shares
(collectively, the "Bedford Shares" or "Shares") offered by this Prospectus
represents interests in one of the following of such investment portfolios: the
Money Market Portfolio, the Municipal Money Market Portfolio and the Government
Obligations 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. 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. To achieve
this objective, the Municipal Money Market Portfolio invests substantially all
of its assets in a diversified portfolio of short-term Municipal Obligations
which meet certain ratings criteria and present minimal credit risks. During
periods of normal market conditions, at least 80% of the net assets of the
Portfolio will be invested in Municipal Obligations, the interest on which is
exempt from the regular Federal income tax but which may constitute an item of
tax preference for purposes of the Federal alternative minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. To achieve its objective, the
Portfolio invests exclusively in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios 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 Portfolios and custodian to the Fund and PFPC Inc. ("PFPC") serves as the
administrator to the Municipal Money Market Portfolio and 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 any of the Bedford Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Bedford Shares is subject to certain risks, as
set forth in detail under "Investment Objectives and Policies." Any or all of
the Portfolios, 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 Bedford Shares,
please refer to the section of this Prospectus entitled "Purchase and Redemption
of Shares."
2
<PAGE>
<TABLE>
<CAPTION>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2) GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C> <C>
Management fees (after waivers)(1) .20% .05% .30%
12b-1 fees (after waivers)(1) .55 .55 .57
Other Expenses (after reimbursements) .22 .24 .105
--- --- ----
Total Fund Operating Expenses (Bedford Shares)
(after waivers and reimbursements) .97% .84% .975%
=== === ====
</TABLE>
(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,
Municipal Money Market Portfolio and Government Obligations Money Market
Portfolio, Management fees would be .37%, .33% and .42%, respectively;
12b-1 fees would be .55%, .55% and .57%, respectively; Other Expenses would
be .22%, .24% and .11%, respectively and Total Fund Operating Expenses
would be 1.14%, 1.12% and 1.10%, respectively.
<TABLE>
<CAPTION>
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market* $10 $31 $54 $119
Municipal Money Market* $ 9 $27 $47 $104
Government Obligations Money Market.* $10 $31 $54 $120
</TABLE>
* Other classes of these Portfolios 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
(Bedford 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 Bedford 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.) Expense figures are based on actual costs and
fees charged to each class. The Fee Table reflects a voluntary waiver of
Management fees for each Portfolio. However, there can be no assurance that any
future waivers of Management fees will not vary from the figure reflected in the
Fee Table. To the extent that any service providers assume additional expenses
of a 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 a Portfolio advertises its "yield" and "effective yield."
BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers to the income
generated by an investment in a Portfolio over a seven-day period (which period
will be stated in the advertisement).
3
<PAGE>
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 Municipal Money Market Portfolio's "tax-equivalent yield" may
also be quoted from time to time, which shows the level of taxable yield needed
to produce an after-tax equivalent to such Portfolio's tax-free yield. This is
done by increasing such Portfolio's yield (calculated as above) by the amount
necessary to reflect the payment of Federal income tax at a stated tax rate.
The yield of any investment is generally a function of portfolio quality
and maturity, type of investment and operating expenses. The yield on Bedford
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 Bedford Shares are not reflected in the yields of the
Bedford Shares, and such fees, if charged, will reduce the actual return
received by shareholders on their investments. The yield on Bedford Shares may
differ from yields on shares of other classes of the Fund that also represent
interests in the same Portfolio depending on the allocation of expenses to each
of the classes of that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Bedford Classes representing interests in the Money Market,
Municipal Money Market and Government Obligations Money Market Portfolios for
the years indicated. The financial data included in this table for each of the
periods ended August 31, 1992 through August 31, 1996 are a part of the Fund's
financial statements for each such 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 each such Portfolio for the periods
ended August 31, 1989, 1990 and 1991 are a part of previous financial statements
audited by Coopers & Lybrand L.L.P. The financial data included in this table
should be read in conjunction with the financial statements and related notes
included in the Statement of Additional Information.
4
<PAGE>
<TABLE>
<CAPTION>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
MONEY MARKET PORTFOLIO
--------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.14%,
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 Bedford Class of shares within
the Portfolio.
5
<PAGE>
<TABLE>
<CAPTION>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0288 0.0297 0.0195 0.0195 0.0287 0.0431 0.0522 0.0513
Net gains on securities
(both realized
and unrealized ) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.0288 0.0297 0.0195 0.0195 0.0287 0.0431 0.0522 0.0513
------- ------- ------- ------- ------- ------- ------- -------
Less distributions
Dividends (from
net investment
income) (0.0288) (0.0297) (0.0195) (0.0195) (0.0287) (0.0431) (0.0522) (0.0513)
Distributions
(from capital
gains) -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.0288) (0.0297) (0.0195) (0.0195) (0.0287) (0.0431) (0.0522) (0.0513)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ========
Total return 2.92% 3.01% 1.97% 1.96% 2.90% 4.40% 5.35% 5.72%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) $ 201,940 $ 198,425 $ 182,480 $ 215,577 $ 176,950 $ 215,140 $ 195,566 $ 85,806
Ratios of expenses
to average
net assets .84%(a) .82%(a) .77%(a) .77%(a) .77%(a) .74%(a) .75%(a) .73%(a)(b)
Ratios of net
investment income to
average net assets 2.88% 2.97% 1.95% 1.95% 2.87% 4.31% 5.22% 5.70%(b)
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Municipal Money Market Portfolio would have been
1.12%, 1.14%, 1.12%, 1.16%, 1.15%, 1.13% and 1.14% 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 Bedford Class of shares within
the Portfolio.
6
<PAGE>
<TABLE>
<CAPTION>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
--------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0458 0.0475 0.0270 0.0231 0.0375 0.0604 0.0748 0.0725
Net gains on securities
(both realized
and unrealized) -- -- -- -- 0.0009 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.0458 0.0475 0.0270 0.0231 0.0384 0.0604 0.0748 0.0725
------- ------- ------- ------- ------- ------- ------- -------
Less distributions dividends
Dividends (from
net investment
income) (0.0458) (0.0475) (0.0270) (0.0231) (0.0375) (0.0604) (0.0748) (0.0725)
Distributions (from
capital gains) -- -- -- -- (0.0009) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.0458) (0.0475) (0.0270) (0.0231) (0.0384) (0.0604) (0.0748) (0.0725)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ======= ====== ====== ======= ====== =========
Total return 4.68% 4.86% 2.73% 2.33% 3.91% 6.21% 7.74% 8.64%(b)
Ratios/Supplemental Data
Net assets, end of
period (000) $ 192,599 $ 163,398 $ 166,418 $ 213,741 $ 225,101 $ 368,899 $209,378 $ 66,281
Ratios of expenses
to average
net assets .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .95%(a) .95%(a) .96%(a)(b)
Ratios of net
investment income
to average net assets 4.58% 4.75% 2.70% 2.31% 3.75% 6.04% 7.48% 8.34%(b)
</TABLE>
(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 Government Obligations Money Market Portfolio would have been
1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17% for the years ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively, and
1.40% annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares within
the Portfolio.
7
<PAGE>
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
("SAI"). 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 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
8
<PAGE>
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".
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 issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio."
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
9
<PAGE>
in GICs are not expected to exceed 5% of its total assets at the time of
purchase absent unusual market conditions. GIC investments are subject to the
Fund's policy regarding investment in illiquid securities.
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 advisor
pursuant to guidelines adopted by the Board of Directors. Eligible securities
generally include: (1) U.S. Government securities, (2) securities that are rated
at the time of purchase in the two highest rating categories by one or more
nationally recognized statistical rating organizations ("NRSROs") (e.g.,
commercial paper rated "A-1" or "A-2" by S&P), (3) securities that are rated at
the time of purchase by the only NRSRO rating the security in one of its two
highest rating categories for such securities, and (4) securities that are not
rated and are issued by an issuer that does not have comparable obligations
rated by an NRSRO ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to eligible rated securities. For a more
complete description of eligible securities, see "Investment Objectives and
Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
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.
10
<PAGE>
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 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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax and which meet certain ratings
criteria and present minimal credit risks. During periods of normal market
conditions, at least 80% of the net assets of the Municipal Money Market
Portfolio will be
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invested in Municipal Obligations. Municipal Obligations include securities, the
interest on which is Tax-Exempt Interest, although to the extent the Portfolio
invests in certain private activity bonds issued after August 7, 1986
("Alternative Minimum Tax Securities"), a portion of the interest earned by the
Portfolio may constitute an item of tax preference for purposes of the federal
alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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 unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by a
Portfolio, the Portfolio may, upon the notice specified in the note, demand
payment of the principal of the note at any time or during specified periods not
exceeding 397 calendar days, depending upon the instrument involved. The absence
of such an active secondary market, however, could make it difficult for the
Portfolio to dispose of a variable rate demand note if the issuer defaulted on
its payment obligation or during the periods that the Portfolio is not entitled
to exercise its demand rights. The Portfolio could, for this or other reasons,
suffer a loss to the extent of the default. The Portfolio invests in variable
rate demand notes only when the Portfolio's investment adviser deems the
investment to involve minimal credit risk. The Portfolio's investment adviser
also monitors the continuing creditworthiness of issuers of such notes to
determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed
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<PAGE>
the tax treatment of bonds issued to finance governmental operations. As used in
this Prospectus, the term "private activity bonds" also includes industrial
development revenue bonds issued prior to the effective date of the provisions
of the Tax Reform Act of 1986. Investors should also be aware of the possibility
of state and local alternative minimum or minimum income tax liability on
interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase portfolio
securities on a "when-issued" basis such as described under "Investment
Objectives and Policies--Money Market Portfolio--When-Issued Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio such as described under
"Investment Objectives and Policies--Money Market Portfolio--Stand-by
Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio--Eligible
Securities."
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, 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 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 Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
the affirmative vote of the holders of a majority of the Municipal Money Market
Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The Municipal Money
Market Portfolio may not, however,
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<PAGE>
change the following investment limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary purposes 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 the lesser of the dollar amounts
borrowed or 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,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-
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<PAGE>
Import Bank of the United States, are supported by the full faith and credit of
the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Student Loan Marketing Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks or the Federal Home Loan Mortgage Corporation, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government-sponsored agencies
or instrumentalities if it is not obligated to do so under law. The Portfolio
will invest in the obligations of such agencies or instrumentalities only when
the investment adviser believes that the credit risk with respect thereto is
minimal.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns Bedford
Shares representing an interest in the Portfolio. Certain government securities
held by the Portfolio may have remaining maturities exceeding 397 calendar days
if such securities provide for adjustments in their interest rates not less
frequently than every 397 calendar days and the adjustments are sufficient to
cause the securities to have market values, after adjustment, which approximate
their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and Policies
- -- Money Market Portfolio -- Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies -- Money Market Portfolio --
Reverse Repurchase Agreements." The Portfolio would consider entering into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-related securities."
Mortgage-related securities may include asset-backed securities which are
backed by mortgages, installment sales contracts, credit card receivables or
other assets and collateralized mortgage obligations ("CMOs") issued or
guaranteed by U.S. Government agencies and instrumentalities or issued by
private companies. Purchasable mortgage-related securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less.
One such type of mortgage-related security in which the Portfolio may
invest is a Government National Mortgage Association ("GNMA") Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments on FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Portfolio may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but, like a
FNMA security, it is not guaranteed by the full faith and
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<PAGE>
credit of the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC,
see "Mortgage-Related Debt Securities" in the Statement of Additional
Information.
Each of the mortgage-related securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as the Portfolio), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as twenty or thirty years, the borrowers
can, and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. This means that, in times of
declining interest rates, some of the Portfolio's higher yielding securities
might be repaid and thereby converted to cash and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase additional
securities. The Portfolio normally will not distribute principal payments
(whether regular or prepaid) to its shareholders. Interest received by the
Portfolio will, however, be distributed to shareholders in the form of
dividends.
To compare the prepayment risk for various mortgage-related securities,
various independent mortgage-related securities dealers publish average
remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when it believes that the price of security may decline, causing
a decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for Federal income tax purposes and for certain
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained in a segregated
account by the Fund's custodian or a qualified sub-custodian. While the short
sale is open, the Portfolio will maintain a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
convertible into or exchangeable for such equivalent securities. A more detailed
discussion of short sales is contained in the Statement of Additional
Information.
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<PAGE>
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, 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 Government Obligations 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 the Portfolio's
outstanding shares. 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
Government Obligations Money Market Portfolio will be achieved. The investment
limitations summarized below may not be changed, however, without such a vote of
shareholders. (A more detailed description of the following investment
limitations is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is not
for investment leverage, but solely to facilitate management of the
Portfolio by enabling the Portfolio to meet redemption requests where
liquidation of Portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under Federal income tax provisions applicable to regulated
investment companies.
PURCHASE AND REDEMPTION OF SHARES
- -------------------------------------------------------------------------------
PURCHASE PROCEDURES
GENERAL. Bedford Shares are sold without a sales load on a continuous basis
by the Distributor. The Distributor is located at 466 Lexington Avenue, New
York, New York. Investors may purchase Bedford Shares through an account
maintained by the investor with his brokerage firm (the "Account") and may also
purchase Shares directly by mail or bank wire. The minimum initial investment is
$1,000, and the minimum subsequent investment is $100. The Fund in its sole
discretion may accept or reject any order for purchases of Bedford Shares.
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<PAGE>
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 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
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
beneficial ownership of Bedford 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.
A broker may offer investors maintaining Accounts the ability to purchase
Bedford Shares under an automatic purchase program (a "Purchase Program")
established by a participating broker. An investor who participates in a
Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Bedford Class designated by the investor
as the "Primary Bedford Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the designation of the Primary Bedford Class at any time by
so instructing his broker.
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.
DIRECT PURCHASES. An investor may also make direct investments at any time
in any Bedford Class he selects through any broker that has entered into a
dealer agreement with the Distributor (a "Dealer"). An investor may make an
initial investment in any of the Bedford Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Bedford Family" c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or by forwarding payment to the Fund's
transfer agent at the foregoing address.
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Provided that the investment is at least $2,500, an investor may also
purchase Shares in any of the Bedford Classes by having his bank or Dealer wire
Federal Funds to the Fund's Custodian, PNC Bank. An investor's bank or Dealer
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) 533-7719 (in
Delaware call collect (302) 791-1196), 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 Dealer to wire the specified amount, together with
your assigned account number, to the Custodian:
PNC Bank, N.A.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Bedford 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
Bedford Shares may redeem Bedford 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 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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares of the Primary Bedford Class to cover debit balances created by
transactions in the Account or instructions for cash disbursements. Shares will
be redeemed on the same day that a transaction occurs that results in such a
debit balance or charge.
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.
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REDEMPTION OF SHARES OWNED DIRECTLY. A direct investor may redeem any
number of Shares by sending a written request to The Bedford Family c/o PFPC,
P.O. Box 8950, Wilmington, Delaware 19899. 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, each signature must be guaranteed. 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). You may call the Transfer Agent at (800) 533-7719 to determine whether
the entity that will guarantee the signature is an eligible guarantor.
Guarantees must be signed by an authorized signatory of the bank, trust company
or member firm and "Signature Guaranteed" must appear with the signature.
Direct 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) 533-7719 (in Delaware call collect (302) 791-1196).
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.
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
$100; however, a broker/dealer may establish a higher minimum. An investor
wishing to use this check writing redemption procedure should complete specimen
signature cards, and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own shares
through an Account should contact their brokers for signature cards. Investors
of joint accounts may elect to have checks honored with a single signature.
Check redemptions will be subject to PNC Bank's rules governing checks. An
investor will be able to stop payment on a check redemption. The Fund or PNC
Bank may terminate this redemption service at any time, and neither shall incur
any liability for honoring checks, for effecting redemptions to pay checks, or
for returning checks which have not been accepted.
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<PAGE>
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 REDEMPTION INFORMATION. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed,
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund reserves the
right to redeem any account in a Bedford 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for the purpose of
pricing purchase and redemption orders is determined twice each day, once as of
12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on each weekday
with the exception of those holidays on which either the NYSE or the FRB is
closed. Currently, the NYSE or the FRB, or both, are closed on the customary
national business holidays of New Year's Day, 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 each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
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BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate nineteen separate investment portfolios. Each of
the Bedford Classes represents interests in one of the following such investment
portfolios: the Money Market Portfolio, the Municipal Money Market Portfolio and
the Government Obligations Money Market Portfolio.
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INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809. PNC Bank serves as the sub-adviser for each of the Portfolios.
PNC Bank and its predecessors have been in the business of managing the
investments of fiduciary and other accounts in the Philadelphia area since 1847.
PNC Bank and its subsidiaries currently manage over $31.4 billion of assets, of
which approximately $28.3 billion are mutual funds. PNC Bank, a national bank
whose principal business address 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 Portfolios, PIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolios, and maintains
the Portfolios' financial accounts and records. PNC Bank, as sub-adviser,
provides research and credit analysis and provides PIMC with certain other
services. In entering into Portfolio transactions for a Portfolio with a broker,
PIMC may take into account the sale by such broker of shares of the Fund,
subject to the requirements of best execution.
For the services provided to and expenses assumed by it for the benefit of
the Money Market and Government Obligations Portfolios, PIMC is entitled to
receive the following fees, computed daily and payable monthly based on a
Portfolio's average daily net assets: .45% of the first $250 million; .40% of
the next $250 million; and .35% of net assets in excess of $500 million. For the
services provided to and expenses assumed by it for the benefit of the Municipal
Money Market Portfolio, PIMC is entitled to receive the following fees, computed
daily and payable monthly based on the Portfolio's average daily net assets:
.35% of the first $250 million; .30% of the next $250 million; and .25% of net
assets in excess of $500 million.
PIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fees paid by the Fund to PIMC with respect to a Portfolio (subject
to certain adjustments). Such sub-advisory fees have no effect on the advisory
fees payable by each Portfolio to PIMC. In addition, PIMC may from time to time
enter into an agreement with one of its affiliates pursuant to which it
delegates some or all of its accounting and administrative obligations under its
advisory agreements with the Fund relating to any Portfolio. Any such
arrangement would have no effect on the advisory fees payable by each Portfolio
to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .20% of the average net assets of the Money Market
Portfolio, .05% of the average net assets of the Municipal Money Market
Portfolio and .30% of the average net assets of the Government Obligations Money
Market Portfolio. For that same year, PIMC waived approximately .17%, .28% and
.12% of average net assets of the Money Market Portfolio, Municipal Money Market
Portfolio and the Government Obligations Money Market Portfolio, respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market Portfolio
and generally assists the Portfolio in all aspects of its administration and
operation, including matters relating to the maintenance of financial records
and accounting. PFPC is entitled to an administration fee, computed daily and
payable monthly at a rate of .10% of the average daily net assets of the
Municipal Money Market 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 agree
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<PAGE>
ments with registered broker/dealers who have entered into dealer agreements
with the Distributor for the provision of certain shareholder support services
to customers of such broker/dealers who are shareholders of the Portfolios. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. These expenses include, but are not limited
to, organizational costs, fees paid to the investment adviser, fees and expenses
of officers and directors who are not affiliated with the Portfolio's investment
adviser or Distributor, taxes, interest, legal fees, custodian fees, auditing
fees, brokerage fees and commissions, certain of the fees and expenses of
registering and qualifying the Portfolio and its shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information annually to existing
shareholders that are not attributable to a particular class, the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class, fidelity bond and directors and officers
liability insurance premiums, the expense of using independent pricing services
and other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. Any general expenses of
the Fund that are not readily identifiable as belonging to a particular
investment portfolio of the Fund will be allocated among all investment
portfolios of the Fund based upon the relative net assets of the investment
portfolios at the time such expenses were accrued. In addition, distribution
expenses, transfer agency expenses, expenses of preparing, printing and
distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were 1.14% of the average net assets with respect to the Bedford Class of the
Money Market Portfolio (not taking into account waivers and reimbursements of
.17%), were 1.12% of the average net assets with respect to the Bedford Class of
the Municipal Money Market Portfolio (not taking into account waivers and
reimbursements of .28%) and were 1.10% of the average net assets with respect to
the Bedford Class of the Government Obligations Money Market Portfolio (not
taking into account waivers and reimbursements of .125%).
DISTRIBUTION OF SHARES
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Counsellors Securities Inc. (the "Distributor"), a wholly-owned subsidiary
of Warburg, Pincus Counsellors Inc., with an address at 466 Lexington Avenue,
New York, New York, acts as distributor of the Shares of each of the Bedford
Classes of the Fund pursuant to separate distribution contracts (collectively,
the "Distribution Contracts") with the Fund on behalf of the Bedford Classes.
The Board of Directors of the Fund approved and adopted the Distribution
Contracts and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of
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<PAGE>
the Plans, the Distributor is entitled to receive from the relevant Bedford
Class a distribution fee, which is accrued daily and paid monthly, of up to .65%
on an annualized basis of the average daily net assets of the relevant Bedford
Class. The actual amount of such compensation is agreed upon from time to time
by the Fund's Board of Directors and the Distributor. Under each of the
Distribution Contracts, the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the Class on an annualized basis in any year. Such
compensation may be increased, up to the amount permitted in the Plan, with the
approval of the Fund's Board of Directors. Pursuant to the conditions of an
exemptive order granted by the Securities and Exchange Commission, the
Distributor has agreed to waive its fee with respect to a Bedford Class on any
day to the extent necessary to assure that the fee required to be accrued by
such Class does not exceed the income of such Class on that day. In addition,
the Distributor may, in its discretion, voluntarily waive from time to time all
or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including broker/dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of any
relevant Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Bedford Class the fee agreed
to under the relevant Distribution Contract. None of the Plans obligate the Fund
to reimburse the Distributor for the actual expenses the Distributor may incur
in fulfilling its obligations under a Plan on behalf of the relevant Bedford
Class. Thus, under each of the Plans, even if the Distributor's actual expenses
exceed the fee payable to the Distributor thereunder at any given time, the Fund
will not be obligated to pay more than that fee. If the Distributor's actual
expenses are less than the fee it receives, the Distributor will retain the full
amount of the fee.
Each Plan has been approved by the shareholders of the relevant Bedford
Class. Under the terms of Rule 12b-1, each will remain in effect only if
approved at least annually by the Fund's Board of Directors, including those
directors who are not "interested persons" of the Fund as that term is defined
in the 1940 Act and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto ("12b-1 Directors").
Each of the Plans may be terminated at any time by vote of a majority of the
12b-1 Directors or by vote of a majority of the Fund's outstanding voting
securities of the relevant Bedford Class. The fee set forth above will be paid
by the Fund on behalf of the relevant Bedford class to the Distributor unless
and until the relevant Plan is terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
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The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Bedford Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of 4:00 p.m. Eastern Time. Net
short-term capital gains, if any, will be distributed at least annually.
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<PAGE>
TAXES
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The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to securities bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income. The maximum marginal rate on
ordinary income for individuals, trusts and estates is generally 31%, while the
maximum rate imposed on net capital gain of such taxpayers is 28%. Corporate
taxpayers are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio intends to pay substantially all of
its dividends as "exempt interest dividends." Investors in this Portfolio should
note, however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" in their Federal income tax returns and
that in two circumstances such amounts, while exempt from regular Federal income
tax, are subject to alternative minimum tax at a rate of 24% in the case of
individuals, trusts and estates, and 20% in the case of corporate taxpayers.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986, will generally constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
alternative minimum and environmental tax liability. Although it does not
currently intend to do so, the Municipal Money Market Portfolio may invest up to
100% of its net assets in such private activity bonds. Secondly, tax-exempt
interest and "exempt interest dividends" derived from all other Municipal
Obligations must be taken into account by corporate taxpayers in determining
their adjusted current earnings adjustment for Federal alternative minimum tax
purposes. Shareholders who are recipients of Social Security Act or Railroad
Retirement Act benefits should further note that tax-exempt interest and "exempt
interest dividends" derived from all types of Municipal Obligations will be
taken into account in determining the taxability of their benefit payments.
The Municipal Money Market Portfolio will determine annually the
percentages of its net investment income which are exempt from the regular
Federal income tax, which constitute an item of tax preference for purposes of
the Federal alternative minimum tax, and which are fully taxable and will apply
such percentages uniformly to all distributions declared from net investment
income during that year. These percentages may differ significantly from the
actual percentages for any particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. Each Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
Federal excise tax.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
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<PAGE>
An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of the Municipal Money Market Portfolio would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and individual
retirement accounts since such plans and accounts are generally tax-exempt and,
therefore, not only would not gain any additional benefit from such Portfolio's
dividends being tax-exempt but also such dividends would be taxable when
distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal income tax consequences described above.
DESCRIPTION OF SHARES
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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 and Government Obligations 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 BEDFORD CLASSES AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
BEDFORD CLASSES.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples 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 (irrespec
26
<PAGE>
tive of class or portfolio) and fractional votes for fractional shares held.
Voting rights are not cumulative and, accordingly, the holders of more than 50%
of the aggregate shares of Common Stock of the Fund may elect all of the
directors.
As of 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 ParkCorporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809, toll-free (800) 533-7719 (in Delaware call collect
(302) 791-1196).
27
<PAGE>
BEDFORD FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO AND
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to shares of three classes (the "Bedford Shares") representing
interests in three investment portfolios (the "Portfolios") of The RBB Fund,
Inc. (the "Fund"): the Money Market Portfolio, the Municipal Money Market
Portfolio (formerly, the Tax-Free Money Market Portfolio) and the Government
Obligations Money Market Portfolio. This Statement of Additional Information is
not a prospectus, and should be read only in conjunction with the Bedford Family
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 2
Investment Objectives and Policies ............ 2 8
Directors and Officers ........................ 14 N/A
Investment Advisory, Distribution and Servicing
Arrangements ............................... 17 21
Portfolio Transactions ........................ 22 N/A
Purchase and Redemption Information ........... 23 17
Valuation of Shares ........................... 24 21
Taxes ......................................... 26 24
Additional Information Concerning Fund Shares.. 31 25
Miscellaneous ................................. 34 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
<PAGE>
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.
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<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
three classes of shares (the "Bedford Classes") representing interests in three
of the investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio and the Government Obligations
Money Market Portfolio. The Bedford Classes are 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 Portfolios. A
description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements involve the
sale of securities held by a Portfolio pursuant to a Portfolio's agreement to
repurchase the securities at an agreed upon price, date and rate of interest.
Such agreements are considered to be borrowings under the Investment Company Act
of 1940 (the "1940 Act"), and may be entered into only for temporary or
emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments held by
the Money Market Portfolio or the Municipal Money Market Portfolio may have
maturities of more than 397 calendar days, provided: (i) the Portfolio is
entitled to the payment of principal at any time, or during specified intervals
not exceeding 397 calendar days, upon giving the prescribed notice (which may
not exceed 30 days), and (ii) the rate of interest on such instruments is
adjusted at periodic intervals which may extend up to 397 calendar days. In
determining the average weighted maturity
-3-
<PAGE>
of the Money Market Portfolio or the Municipal Money Market Portfolio and
whether a variable rate demand instrument has a remaining maturity of 397
calendar days or less, each instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. In determining whether an unrated variable rate demand
instrument is an eligible security, the Portfolio's investment adviser will
follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include "when issued" and
delayed delivery securities purchased for delivery beyond the normal settlement
date at a stated price and yield. While the Money Market Portfolio or Municipal
Money Market Portfolio has firm commitments outstanding, such Portfolio will
maintain in a segregated account with the Fund's custodian or a qualified
sub-custodian, cash, U.S. government securities or other liquid, high grade debt
securities of an amount at least equal to the purchase price of the securities
to be purchased. Normally, the custodian for the relevant Portfolio will set
aside portfolio securities to satisfy a purchase commitment and, in such a case,
such Portfolio may be required subsequently to place additional assets in the
separate account in order to ensure that the value of the account remains equal
to the amount of such Portfolio's commitment. It may be expected that such
Portfolio's net assets will fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase commitments than when it sets aside
cash. Because such Portfolio's liquidity and ability to manage its portfolio
might be affected when it sets aside cash or portfolio securities to cover such
purchase commitments, such Portfolio expects that commitments to purchase "when
issued" securities will not exceed 25% of the value of its total assets absent
unusual market conditions. When either the Money Market Portfolio or Municipal
Money Market Portfolio engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in
such Portfolio's incurring a loss or missing an opportunity to obtain a price
considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio and Municipal
Money Market Portfolio may enter into stand-by commitments with respect to
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities and authorities (collectively, "Municipal
Obligations") held in its portfolio. Under a stand-by commitment, a dealer would
agree to purchase at the Portfolio's option a specified Municipal Obligation at
its amortized cost value to the Portfolio plus accrued interest, if any.
Stand-by commitments may be exercisable by the Money Market Portfolio or
Municipal Money Market Portfolio
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<PAGE>
at any time before the maturity of the underlying Municipal Obligations and may
be sold, transferred or assigned only with the instruments involved.
Each of the Money Market Portfolio and Municipal Money Market Portfolio
expects that stand-by commitments will generally be available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, either such Portfolio may pay for a stand-by commitment either
separately in cash or by paying a higher price for portfolio securities which
are acquired subject to the commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid in either
manner for outstanding stand-by commitments held by the Money Market Portfolio
and Municipal Money Market Portfolio will not exceed 1/2 of 1% of the value of
the relevant Portfolio's total assets calculated immediately after each stand-by
commitment is acquired.
Each of the Money Market Portfolio and Municipal Money Market Portfolio
intends to enter into stand-by commitments only with dealers, banks and
broker-dealers which, in the investment adviser's opinion, present minimal
credit risks. Either such Portfolio's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Money Market Portfolio and Municipal Money Market Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and do not
intend to exercise their rights thereunder for trading purposes. The acquisition
of a stand-by commitment will not affect the valuation or assumed maturity of
the underlying Municipal Obligation which will continue to be valued in
accordance with the amortized cost method. The actual stand-by commitment will
be valued at zero in determining net asset value. Accordingly, where either such
Portfolio pays directly or indirectly for a stand-by commitment, its cost will
be reflected as an unrealized loss for the period during which the commitment is
held by such Portfolio and will be reflected in realized gain or loss when the
commitment is exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN BRANCHES OF U.S.
BANKS. For purposes of the Money Market Portfolio's investment policies with
respect to bank obligations, the assets of a bank or savings institution will be
deemed to include the assets of its domestic and foreign branches. Investments
in bank obligations will include obligations of domestic branches of foreign
banks and foreign branches of domestic banks. Such investments may involve risks
that are different from investments in securities of domestic branches of U.S.
banks. These risks may include future unfavorable political and economic
developments, possible withholding taxes on interest income, seizure or
nationalization of foreign deposits, currency
-5-
<PAGE>
controls, interest limitations, or other governmental restrictions which might
affect the payment of principal or interest on the securities held in the Money
Market Portfolio. Additionally, these institutions may be subject to less
stringent reserve requirements and to different accounting, auditing, reporting
and recordkeeping requirements than those applicable to domestic branches of
U.S. banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
SHORT SALES "AGAINST THE BOX": In a short sale, the Government Obligations
Money Market Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales if at the time of the short sale it owns or has the right
to obtain, at no additional cost, an equal amount of the security being sold
short. This investment technique is known as a short sale "against the box." In
a short sale, a seller does not immediately deliver the securities sold and is
said to have a short position in those securities until delivery occurs. If the
Portfolio engages in a short sale, the collateral for the short position will be
maintained by the Portfolio's custodian or a qualified sub-custodian. While the
short sale is open, the Portfolio will maintain in a segregated account an
amount of securities equal in kind and amount to the securities sold short or
securities convertible into or exchangeable for such equivalent securities.
These securities constitute the Portfolio's long position. The Portfolio will
not engage in short sales against the box for investment purposes. The Portfolio
may, however, make a short sale as a hedge, when it believes that the price of a
security may decline, causing a decline in the value of a security owned by the
Portfolio (or a security convertible or exchangeable for such security), or when
the Portfolio wants to sell the security at an attractive current price, but
also wishes to defer recognition of gain or loss for federal income tax purposes
and for purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In such case, any future losses in
the Portfolio's long position should be reduced by a gain in the short position.
Conversely, any gain in the long position should be reduced by a loss in the
short position. The extent to which such gains or losses are reduced will depend
upon the amount of the security sold short relative to the amount the Portfolio
owns. There will be certain additional transaction costs associated with short
sales against the box, but the Portfolio will endeavor to offset these costs
with the income from the investment of the cash proceeds of short sales. The
dollar amount of short sales at any time will not exceed 25% of the net assets
of the Government Obligations Money Market Portfolio, and the value of
securities of any one issuer in which the Portfolio is short will not exceed the
lesser of 2% of net assets or 2% of the securities of any class of an issuer.
-6-
<PAGE>
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S. Government
obligations include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and
the obligations of Federal Home Loan Banks, Federal Farm Credit Banks, Federal
Land Banks, the Federal Housing Administration, Farmers Home Administration,
Export-Import Bank of the United States, Small Business Administration, Federal
National Mortgage Association, Government National Mortgage Association, General
Services Administration, Student Loan Marketing Association, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Maritime Administration, International Bank for Reconstruction and
Development (the "World Bank"), the Asian-American Development Bank and the
Inter-American Development Bank.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper which is
issued in reliance on the "private placement" exemption from registration which
is afforded by Section 4(2) of the Securities Act of 1933. Section 4(2) paper is
restricted as to disposition under the Federal securities laws and is generally
sold to institutional investors such as the Fund which agree that they are
purchasing the paper for investment and not with a view to public distribution.
Any resale by the purchaser must be in an exempt transaction. Section 4(2) paper
normally is resold to other institutional investors through or with the
assistance of investment dealers who make a market in the Section 4(2) paper,
thereby providing liquidity. See "Illiquid Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the repurchase agreements
described in the Prospectus generally equals the price paid by a Portfolio plus
interest negotiated on the basis of current short-term rates (which may be more
or less than the rate on the securities underlying the repurchase agreement).
Securities subject to repurchase agreements will be held by the Fund's custodian
in the Federal Reserve/Treasury book-entry system or by another authorized
securities depository. Repurchase agreements are considered to be loans by a
Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt securities
represent ownership interests in individual pools of residential mortgage loans.
These securities are designed to provide monthly payments of interest and
principal to the investor. Each mortgagor's monthly payment to his lending
institution on his residential mortgage is "passed-through" to investors.
Mortgage pools consist of whole mortgage loans or participations in loans. The
terms and characteristics of the mortgage instruments are generally uniform
within a pool but may vary among pools. Lending institutions which originate
mortgages for the pools are subject to certain standards, including credit and
underwriting criteria for individual mortgages included in the pools.
-7-
<PAGE>
Since the inception of the mortgage-related pass-through security in 1970,
the market for these securities has expanded considerably. The size of the
primary issuance market, and active participation in the secondary market by
securities dealers and many types of investors, historically have made interests
in government and government-related pass-through pools highly liquid, although
no guarantee regarding future market conditions can be made. The average life of
pass-through pools varies with the maturities of the underlying mortgage
instruments. In addition, a pool's term may be shortened by unscheduled or early
payments of principal and interest on the underlying mortgages. The occurrence
of mortgage prepayments is affected by factors including the level of interest
rates, general economic conditions, the location and age of the mortgages and
various social and demographic conditions. Because prepayment rates of
individual pools vary widely, it is not possible to predict accurately the
average life of a particular pool. For pools of fixed rate 30 year mortgages,
common industry practice is to assume that prepayments will result in a 12 year
average life. Pools of mortgages with other maturities or different
characteristics will have varying assumptions concerning average life. The
assumed average life of pools of mortgages having terms of less than 30 years is
less than 12 years, but typically not less than 5 years. Yields on pass-through
securities are typically quoted by investment dealers and vendors based on the
maturity of the underlying instruments and the associated average life
assumption. In periods of falling interest rates, the rate of prepayment tends
to increase, thereby shortening the actual average life of a pool of underlying
mortgage-related securities. Conversely, in periods of rising rates the rate of
prepayment tends to decrease, thereby lengthening the actual average life of the
pool. Historically, actual average life has been consistent with the 12-year
assumption referred to above. Actual prepayment experience may cause the yield
of mortgage-related securities to differ from the assumed average life yield. In
addition, as noted in the 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.
-8-
<PAGE>
LENDING OF SECURITIES. With respect to loans by the Government Obligations
Money Market Portfolio of its portfolio securities as described in the
Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loans by the Government Obligations Money
Market Portfolio of its portfolio securities will be fully collateralized and
marked to the market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase "eligible
securities" that present minimal credit risks as determined by the investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. government securities, (2) securities that
(a) are rated (at the time of purchase) by two or more nationally recognized
statistical rating organizations ("NRSROs") in the two highest rating categories
for such securities (e.g., commercial paper rated "A-1" or "A-2" by S&P, or
rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at the time of
purchase) by the only NRSRO rating the security in one of its two highest rating
categories for such securities; (3) short-term obligations and long-term
obligations that have remaining maturities of 397 calendar days or less,
provided in each instance that such obligations have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer that has been rated in accordance with (2)(a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, or (b) that are not unconditional, provided that the
demand feature satisfies (2), (3) or (4) above, and the demand instrument or
long-term obligations of the issuer satisfy (2) or (4) above for long-term debt
obligations. The Board of Directors will approve or ratify any purchases by the
Money Market and Government Obligations Money Market Portfolios of securities
that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more than 10% of its
net assets in illiquid securities (including with respect to all Portfolios
other than the Municipal Money Market Portfolio, repurchase agreements which
have a maturity of longer than seven days), including securities that are
illiquid by virtue of the absence of a readily available market or legal or
contractual restrictions on resale. Securities that have
-9-
<PAGE>
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio and the Government Obligations Money Market Portfolio,
repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period.
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
securities which are otherwise not readily marketable and, except as to the
Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven days. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
SEC Rule 144A allows for a broader institutional trading market for
securities otherwise subject to restriction on resale to the general public.
Rule 144A establishes a "safe harbor" from the registration requirements of the
Securities Act for resales of certain securities to qualified institutional
buyers. The investment adviser anticipates that the market for certain
restricted securities such as institutional commercial paper will expand further
as a result of this relatively new regulation and the development of automated
systems for the trading, clearance and settlement
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<PAGE>
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the NASD.
Each Portfolio's investment adviser will monitor the liquidity of
restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO. Neither the
Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes (and with
respect to the Money Market Portfolio only, except for reverse repurchase
agreements) and then in amounts not in excess of 10% of the value of the
Portfolio's total assets at the time of such borrowing, and only if after such
borrowing there is asset coverage of at least 300 percent for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then, with respect to the Money Market
Portfolio, in amounts not in excess of 10% of the value of a Portfolio's total
assets at the time of such borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar amounts
borrowed or 10% of the value of a Portfolio's total assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of the Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.); (
2) purchase securities of any one issuer, other than securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if
immediately after and as a result of such purchase more than 5% of a Portfolio's
total assets would be invested in the securities of such issuer, or more than
10% of the
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outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term credit necessary
for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, a Portfolio may be
deemed an underwriter under Federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a short position or write or
sell puts, calls, straddles, spreads or combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development programs;
(9) make loans except that a Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations and (except for the Municipal Money Market Portfolio) may enter into
repurchase agreements;
(10) purchase any securities issued by any other investment company except
in connection with the merger, consolidation, acquisition or reorganization of
all the securities or assets of such an issuer; or
(11) make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the
Municipal Money Market Portfolio may not (i) under normal market
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<PAGE>
conditions invest less than 80% of its net assets in securities the interest on
which is exempt from the regular Federal income tax, although the interest on
such securities may constitute an item of tax preference for purposes of the
Federal alternative minimum tax, (ii) invest in private activity bonds where the
payment of principal and interest are the responsibility of a company (including
its predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment limitations, the Money
Market Portfolio may not:
(a) Purchase any securities other than Money-Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the value of
the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be invested
in the obligations of issuers in the banking industry, or in obligations, such
as repurchase agreements, secured by such obligations (unless the Portfolio is
in a temporary defensive position) or which would cause, at the time of
purchase, more than 25% of the value of its total assets to be invested in the
obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time of purchase)
in securities of issuers (including their predecessors) with less than three
years of continuous operations.
The foregoing investment limitations cannot be changed without the
affirmative vote of the lesser of (a) more than 50% of the outstanding shares of
the Portfolio or (b) 67% or more of the shares of the Portfolio present at a
shareholders' meeting if more than 50% of the outstanding shares 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 Money Market Portfolio), the Portfolio will consider
wholly-owned finance companies to be in the industries of their parents if their
activities are primarily related to financing the activities of the parents, and
will divide utility companies according to their services. For example, gas, gas
transmission, electric and gas, electric and telephone will each be considered a
separate industry. The policy and practices stated in this paragraph may be
changed without the affirmative vote of the holders of a majority of the
affected Money Market Portfolio's outstanding shares, but
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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 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.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if after
the acquisition of the Put the Municipal Money Market Portfolio
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<PAGE>
has more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing condition
shall only be applicable with respect to 75% of the Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified underlying
instrument within a specified period of time and at a specified exercise price
that may be sold, transferred or assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government Obligations
Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations. There
is no limit on the amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is permitted to
purchase.
2. Borrow money, except from banks for temporary purposes, and except for
reverse repurchase agreements, and then in an amount not exceeding 10% of the
value of the Portfolio's total assets, and only if after such borrowing there is
asset coverage of at least 300 percent for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets except in connection with any such
borrowing and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to facilitate
management of the Portfolio by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may lend
portfolio securities against collateral consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is equal at all
times to at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned, except
that payments received on such loans, including amounts received during the loan
on account of interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross income
(without offset for realized capital gains) unless,
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<PAGE>
in the opinion of counsel to the Fund, such amounts are qualifying income under
Federal income tax provisions applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain short-term
credit necessary for clearance of portfolio transactions.
-------------------
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 Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M.
Warburg, Pincus & Co.,
Inc.; Since 1990,
Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.;
Officer of various
investment companies
advised by Warburg,
Pincus Counsellors,
Inc.
Robert Sablowsky, 58** Director Since OCTOBER 1996,
110 Wall Street SENIOR VICE PRESIDENT
New York, NY 10005 OF FAHNESTOCK & CO.,
INC. 1985 TO 1996,
Executive Vice
President of Gruntal &
Co., Inc., Director,
Gruntal & Co., Inc.
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<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
Principal Occupation
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<PAGE>
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
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).
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 100 Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management Corporation.
-18-
<PAGE>
-19-
<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
Morgan R. Jones, 57 Secretary Chairman, the law firm
1100 PNB Bank Building of Drinker Biddle &
Broad and Chestnut Streets Reath, Philadelphia,
Philadelphia, PA 19107 Pennsylvania, Director,
Rocking Horse Child
Care Centers of
America, Inc.
- -------------------------
* 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:
DIRECTOR COMPENSATION
-------- ------------
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<PAGE>
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-ADVISER and the Fund's
custodian, PFPC Inc. ("PFPC"), the Municipal Money Market Portfolio's
administrator and the Fund's transfer and dividend disbursing agent, and
Counsellors Securities Inc. (the "Distributor"), the Fund's distributor, the
Fund itself requires only one part-time employee. No officer, director or
employee of PIMC, PNC Bank, PFPC or the Distributor currently receives any
compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and sub-advisory
services provided by PIMC and PNC Bank and the fees received by PIMC and PNC
Bank for such services are described in the Prospectus. PIMC renders advisory
services to each of the Portfolios and also renders administrative services to
the Money Market and Government Obligations Money Market Portfolios pursuant to
separate investment advisory agreements and PNC Bank renders sub-advisory
services to each of the Portfolios pursuant to separate Sub-Advisory Agreements.
Each of the Sub-Advisory Agreements is dated August 16, 1988. The advisory
agreements relating to the Money Market and Government Obligations Money market
Portfolios are each dated August 16, 1988, and the advisory agreement relating
to the Municipal Money Market Portfolio is dated April 21, 1992. Such advisory
and sub-advisory agreements are hereinafter collectively referred to as the
"Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER WAIVERS)
$4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO, $190,687
IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO AND
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO. DURING THE SAME YEAR, PIMC WAIVED $3,527,715 OF ADVISORY FEES
WITH RESPECT TO THE MONEY MARKET PORTFOLIO, 1,218,973 OF ADVISORY FEES WITH
RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO AND 671,811
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<PAGE>
OF ADVISORY FEES WITH RESPECT TO GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO.
FOR THE YEAR ENDED AUGUST 31, 1995, PIMC received (after waivers) $2,274,697 in
advisory fees with respect to the Money Market Portfolio, $67,752 in advisory
fees with respect to the Municipal Money Market Portfolio, $780,122 in advisory
fees with respect to Government Obligations Money Market Portfolio. During the
same year, PIMC waived $2,589,882 of advisory fees with respect to the Money
Market Portfolio, $1,041,321 of advisory fees with respect to the Municipal
Money Market Portfolio, $398,363 of advisory fees with respect to the Government
Obligations 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, $7,733 in advisory fees with respect to the Municipal Money
Market Portfolio, $580,435 in advisory fees with respect to Government
Obligations Money Market Portfolio. During the same year, PIMC waived $2,255,986
of advisory fees with respect to the Money Market Portfolio, $1,091,646 of
advisory fees with respect to the Municipal Money Market Portfolio, $461,938 of
advisory fees with respect to the Government Obligations 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 each Portfolio on an individual basis depends upon
the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically assumed by
PIMC. General expenses of the Fund not readily identifiable as belonging to a
portfolio of the Fund are allocated among all investment portfolios by or under
the direction of the Fund's Board of Directors in such manner as the Board
determines to be fair and equitable. Expenses borne by a portfolio include, but
are not limited to, the following (or a portfolio's share of the following): (a)
the cost (including brokerage commissions) of securities purchased or sold by a
portfolio and any losses incurred in connection therewith; (b) fees payable to
and expenses incurred on behalf of a portfolio by PIMC; (c) expenses of
organizing the Fund that are not attributable to a class of the Fund; (d)
certain of the filing fees and expenses relating to the registration and
qualification of the Fund and a portfolio's shares under Federal and/or state
securities laws and maintaining such registrations and qualifications; (e) fees
and salaries payable to the Fund's directors and officers; (f) taxes (including
any income or franchise
-22-
<PAGE>
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
relevant 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 with respect to the Money
Market and Government Obligations Money Market Portfolios by shareholders of
each Portfolio at a special meeting held December 22, 1989, as adjourned. The
Investment Advisory Agreement was approved with respect to the Municipal Money
Market Portfolio by shareholders at a special meeting held June 10, 1992, as
adjourned. The Sub-Advisory Agreement was approved with respect to the Municipal
Money Market Portfolio by shareholders at a special meeting held on December 22,
1989, as adjourned. Each Advisory Contract is terminable by vote of the Fund's
Board of Directors or by the holders of a
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<PAGE>
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENT. PFPC serves as the administrator to the Municipal
Money Market Portfolio pursuant to an Administration and Accounting Services
Agreement dated April 21, 1992 (the "Administration Agreement"). PFPC has agreed
to furnish to the Fund on behalf of the Municipal Money Market Portfolio
statistical and research data, clerical, accounting, and bookkeeping services,
and certain other services required by the Fund. PFPC has also agreed to prepare
and file various reports with the appropriate regulatory agencies, and prepare
materials required by the SEC or any state securities commission having
jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of the Agreement, except a loss
resulting from willful misfeasance, gross negligence or reckless disregard by it
of its duties and obligations thereunder. In consideration for providing
services pursuant to the Administration Agreement, PFPC receives a fee of .10%
of the average daily net assets of the Municipal Money Market Portfolio.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is custodian of the
Fund's assets pursuant to a custodian agreement dated August 16, 1988, as
amended (the "Custodian Agreement"). Under the Custodian Agreement, PNC Bank (a)
maintains a separate account or accounts in the name of each Portfolio (b) holds
and transfers portfolio securities on account of each Portfolio, (c) accepts
receipts and makes disbursements of money on behalf of each Portfolio, (d)
collects and receives all income and other payments and distributions on account
of each Portfolio's portfolio securities and (e) makes periodic reports to the
Fund's Board of Directors concerning each Portfolio's operations. PNC Bank is
authorized to select one or more banks or trust companies to serve as
sub-custodian on behalf of the Fund, provided that PNC Bank remains responsible
for the performance of all its duties under the Custodian Agreement and holds
the Fund harmless from the acts and omissions of any sub-custodian. For its
services to the Fund under the Custodian Agreement, PNC Bank receives a fee
which is calculated based upon each Portfolio's average daily gross assets as
follows: $.25 per $1,000 on the first $50 million of average daily gross assets;
$.20 per $1,000 on the next $50 million of average daily gross assets; and $.15
per $1,000 on average daily gross assets over $100 million, with a minimum
monthly fee of $1,000 per
-24-
<PAGE>
Portfolio, exclusive of transaction charges and out-of-pocket expenses, which
are also charged to the Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and dividend
disbursing agent for the Fund's Bedford Classes pursuant to a Transfer Agency
Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under which
PFPC (a) issues and redeems shares of each of the Bedford Classes, (b) addresses
and mails all communications by each Portfolio to record owners of shares of
each such Class, including reports to shareholders, dividend and distribution
notices and proxy materials for its meetings of shareholders, (c) maintains
shareholder accounts and, if requested, sub-accounts and (d) makes periodic
reports to the Fund's Board of Directors concerning the operations of each
Bedford Class. PFPC may, on 30 days' notice to the Fund, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services to the Fund under the Transfer Agency Agreement, PFPC receives
a fee at the annual rate of $15.00 per account in each Portfolio for orders
which are placed by third parties and relayed electronically to PFPC, and at an
annual rate of $17.00 per account in each 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 Portfolios.
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a distribution contract,
dated as of April 10, 1991, and supplements entered into by the Distributor and
the Fund on behalf of each of the Bedford Classes (collectively, the
"Distribution Contracts"), and separate Plans of Distribution for each of the
Bedford Classes (collectively, the "Plans"), all of which were adopted by the
Fund in the manner prescribed by Rule 12b-1 under the 1940 Act, the Distributor
will use its best efforts to distribute shares of each of the Bedford Classes.
As compensation for its distribution
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<PAGE>
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans 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 relevant Bedford 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
Plans or any agreements related to the Plans ("12b-1 Directors"). Each of the
Plans was approved by shareholders of each Bedford Class at a special meeting
held December 22, 1989, as adjourned.
Among other things, each of the Plans provides that: (1) the Distributor
shall be required to submit quarterly reports to the directors of the Fund
regarding all amounts expended under the Plan and the purposes for which such
expenditures were made, including commissions, advertising, printing, interest,
carrying charges and any allocated overhead expenses; (2) the Plan will continue
in effect only so long as it is approved at least annually, and any material
amendment thereto is approved, by the Fund's directors, including the 12b-1
Directors, acting in person at a meeting called for said purpose; (3) the
aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Bedford 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 Bedford 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 Plans for the Bedford Classes of each of the
Money Market Portfolio, the Municipal Money Market Portfolio and the Government
Obligations Money Market Portfolio in the aggregate amounts of $5,826,142,
$1,139,416 AND $1,091,847, respectively. Of those amounts $5,582,603,
$1,118,274 AND $1,072,131, respectively, was paid to dealers with whom the
Distributor had entered into sales agreements, and $243,539, $21,142 and
$19,716, respectively, 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 each of the Bedford
Classes of the Money Market
-26-
<PAGE>
Portfolio, the Municipal Money Market Portfolio and the Government Obligations
Money Market Portfolio. The Fund believes that such Plans may benefit the Fund
by increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plans 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
Each of the Portfolios intends to purchase securities with remaining
maturities of 397 calendar days or less, except for securities that are subject
to repurchase agreements (which in turn may have maturities of 397 calendar days
or less), and except that each of the Money Market Portfolio and the Municipal
Money Market Portfolio may purchase variable rate securities with remaining
maturities of 397 calendar days or more so long as such securities comply with
conditions established by the SEC under which they may be considered to have
remaining maturities of 397 calendar days or less. Because all Portfolios intend
to purchase only securities with remaining maturities of 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 each
such Portfolio, the turnover rate should not adversely affect such Portfolio's
net asset value or net income. The Portfolios do not intend to seek profits
through short term trading.
Purchases of portfolio securities by each of the Portfolios are made from
dealers, underwriters and issuers; sales are made to dealers and issuers. None
of the Portfolios currently expects to incur any brokerage commission expense on
such transactions because money market instruments are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the security, however, usually includes a profit
to the dealer. Securities purchased in underwritten offerings include a fixed
amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. When securities are purchased directly
from or sold directly to an issuer, no commissions or discounts are paid. It is
the policy of such Portfolios to give primary consideration to obtaining the
most favorable price and efficient execution of transactions. In seeking to
implement the policies of such Portfolios, PIMC will effect transactions with
those dealers it believes provide the most favorable prices and are capable of
providing efficient executions. In no instance will portfolio securities be
purchased from or sold to the Distributor, PIMC or PNC Bank or any affiliated
person of the foregoing
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<PAGE>
entities except to the extent permitted by SEC exemptive order or by applicable
law.
PIMC may seek to obtain an undertaking from issuers of commercial paper or
dealers selling commercial paper to consider the repurchase of such securities
from a Portfolio prior to their maturity at their original cost plus interest
(sometimes adjusted to reflect the actual maturity of the securities), if it
believes that a Portfolio's anticipated need for liquidity makes such action
desirable. Any such repurchase prior to maturity reduces the possibility that
the Portfolio would incur a capital loss in liquidating commercial paper (for
which there is no established market), especially if interest rates have risen
since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other investment accounts
managed by PIMC or PNC Bank are made independently of each other in the light of
differing conditions. However, the same investment decision may occasionally be
made for two or more of such accounts. In such cases, simultaneous transactions
are inevitable. Purchases or sales are then averaged as to price and allocated
as to amount according to a formula deemed equitable to each such account. While
in some cases this practice could have a detrimental effect upon the price or
value of the security as far as a Portfolio is concerned, in other cases it is
believed to be beneficial to a Portfolio. A Portfolio will not purchase
securities during the existence of any underwriting or selling group relating to
such security of which PIMC or PNC Bank or any affiliated person (as defined in
the 1940 Act) thereof is a member except pursuant to procedures adopted by the
Fund's Board of Directors pursuant to Rule 10f-3 under the 1940 Act. Among other
things, these procedures, which will be reviewed by the Fund's directors
annually, require that the commission paid in connection with such a purchase be
reasonable and fair, that the purchase be at not more than the public offering
price prior to the end of the first business day after the date of the public
offer, and that PIMC and PNC Bank not participate in or benefit from the sale to
a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make cash payments
undesirable, to honor any request for redemption or repurchase of a Portfolio's
shares by making payment in whole or in part in securities chosen by the Fund
and valued in the same way as they would be valued for purposes of computing a
Portfolio's net asset value. If payment is made in securities, a shareholder may
incur transaction costs in converting these securities into cash. The Fund has
elected, however, to be governed by Rule 18f-1 under the 1940 Act so that a
Portfolio is obligated to redeem its shares solely in cash
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up to the lesser of $250,000 or 1% of its net asset value during any 90-day
period for any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of redemption or
postpone the date of payment upon redemption for any period during which the New
York Stock Exchange (the "NYSE") is closed (other than customary weekend and
holiday closings), or during which trading on said Exchange is restricted, or
during which (as determined by the SEC by rule or regulation) an emergency
exists as a result of which disposal or valuation of portfolio securities is not
reasonably practicable, or for such other periods as the SEC may permit. (A
Portfolio may also suspend or postpone the recordation of the transfer of its
shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net asset value of
each of the Portfolios at $1.00 per share. Net asset value per share, the value
of an individual share in a Portfolio, is computed by dividing a Portfolio's net
assets by the number of outstanding shares of a Portfolio. A Portfolio's "net
assets" equal the value of a Portfolio's investments and other securities less
its liabilities. The Fund's net asset value per share is computed twice each
day, as of 12:00 noon (Eastern Time) and as of 4:00 p.m. (Eastern Time) on each
Business Day. "Business Day" means each day, Monday through Friday, when both
the NYSE and the Federal Reserve Bank of Philadelphia (the "FRB") are open.
Currently, the NYSE IS closed on WEEKENDS AND 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 VETERANS DAY AND COLUMBUS DAY.
The Fund calculates the value of the portfolio securities of each of the
Portfolios by using the amortized cost method of valuation. Under this method
the market value of an instrument is approximated by amortizing the difference
between the acquisition cost and value at maturity of the instrument on a
straight-line basis over the remaining life of the instrument. The effect of
changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when
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interest rates have increased, a Portfolio may have to sell portfolio securities
prior to maturity and at a price which might not be as desirable.
The amortized cost method of valuation may result in the value of a
security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average portfolio
maturity of 90 days or less, will not purchase any instrument with a deemed
maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days will
limit portfolio investments, including repurchase agreements (where permitted),
to those United States dollar-denominated instruments that PIMC determines
present minimal credit risks pursuant to guidelines adopted by the Board of
Directors, and PIMC will comply with certain reporting and recordkeeping
procedures concerning such credit determination. There is no assurance that
constant net asset value will be maintained. In the event amortized cost ceases
to represent fair value in the judgment of the Fund's Board of Directors, the
Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio investments, the
Fund may employ outside organizations, which may use a matrix or formula method
that takes into consideration market indices, matrices, yield curves and other
specific adjustments. This may result in the securities being valued at a price
different from the price that would have been determined had the matrix or
formula method not been used. All cash, receivables and current payables are
carried on the Fund's books at their face value. Other assets, if any, are
valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolios' current and effective
yields are computed using standardized methods required by the SEC. The
annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base
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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 Classes of each of the Money Market Portfolio, the Municipal Money
Market Portfolio and the Government Obligations Money Market Portfolio was
4.51%, 2.81% and 4.42%, respectively. The effective yield for the same period
for the same Classes was 4.61%, 2.85% and 4.52%, respectively. The tax
equivalent yield for the same period for the Bedford Class of the Municipal
Money Market Portfolio was 4.24% (assuming an income tax rate of 28%).
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yields of each Portfolio will fluctuate, they cannot
be compared with yields on savings account or other investment alternatives that
provide an agreed to or guaranteed fixed yield for a stated period of time.
However, yield information may be useful to an investor considering temporary
investments in money market instruments. In comparing the yield of one money
market fund to another, consideration should be given to each fund's investment
policies, including the types of investments made, lengths of maturities of the
portfolio securities, the method used by each fund to compute the yield (methods
may differ) and whether there are any special account charges which may reduce
the effective yield.
The yields on certain obligations, including the money market instruments
in which each Portfolio invests (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general money market
conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
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From time to time, in advertisements or in reports to shareholders, the
yields of a Portfolio may be quoted and compared to those of other mutual funds
with similar investment objectives and to stock or other relevant indices. For
example, the yield of a Portfolio may be compared to the Donoghue's Money Fund
Average, which is an average compiled by IBC/Donoghue's MONEY FUND REPORT 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 Portfolios and their shareholders that are not described
in the Fund's Prospectus. No attempt is made to present a detailed explanation
of the tax treatment of the Portfolios or their shareholders, and the discussion
here and in the Prospectus is not intended as a substitute for careful tax
planning. Investors are urged to consult their tax advisers with specific
reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated investment company
under Part I of Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"). As a regulated investment company, each Portfolio is exempt from
Federal income tax on its net investment income and realized capital gains which
it distributes to shareholders, provided that it distributes an amount equal to
the sum of (a) at least 90% of its investment company taxable income (net
investment income and the excess of net short-term capital gain over net
long-term capital loss), if any, for the year and (b) at least 90% of its net
tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement each Portfolio
must derive at least 90% of its gross income from dividends, interest, certain
payments with respect to securities loans and gains from the
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sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of each quarter of
its taxable year, at least 50% of the value of each Portfolio's assets must
consist of cash and cash items, U.S. Government securities, securities of other
regulated investment companies, and securities of other issuers (as to which a
Portfolio has not invested more than 5% of the value of its total assets in
securities of such issuer and as to which a Portfolio does not hold more than
10% of the outstanding voting securities of such issuer), and no more than 25%
of the value of each Portfolio's total assets may be invested in the securities
of any one issuer (other than U.S. Government securities and securities of other
regulated investment companies), or in two or more issuers which such Portfolio
controls and which are engaged in the same or similar trades or businesses (the
"Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in informal rulings
issued to other taxpayers, that the issuer of a repurchase agreement is the bank
or dealer from which securities are purchased. The Money Market Portfolio and
Government Obligations Money Market Portfolio will not enter
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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.
The Municipal Money Market Portfolio is designed to provide investors with
current tax-exempt interest income. In order for the Municipal Money Market
Portfolio to pay exempt interest dividends during any taxable year, at the close
of each fiscal quarter at least 50% of the value of such Portfolio must consist
of exempt interest obligations. Exempt interest dividends distributed to
shareholders by this Portfolio are not included in the shareholder's gross
income for regular Federal income tax purposes.
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 Municipal Money Market Portfolio may not be an appropriate investment
for entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his trade or business and (a) whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, (b)
who occupies more than 5% of the entire usable area of such facilities, or (c)
for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
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Each of the Money Market Portfolio and Municipal Money Market Portfolio may
acquire standby commitments with respect to Municipal Obligations held in its
portfolio and will treat any interest received on Municipal Obligations subject
to such standby commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2
C.B. 34, the Internal Revenue Service held that a mutual fund acquired ownership
of municipal obligations for Federal income tax purposes, even though the fund
simultaneously purchased "put" agreements with respect to the same municipal
obligations from the seller of the obligations. The Fund will not engage in
transactions involving the use of standby commitments that differ materially
from the transaction described in Rev. Rul. 82-144 without first obtaining a
private letter ruling from the Internal Revenue Service or the opinion of
counsel.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Municipal Money Market Portfolio is not deductible for income tax
purposes if (as expected) the Municipal Money Market Portfolio distributes
exempt interest dividends during the shareholder's taxable year.
Distributions of net investment income received by a Portfolio from
investments in debt securities (other than interest on tax-exempt Municipal
Obligations that is distributed as exempt interest dividends) and any net
realized short-term capital gains distributed by a Portfolio will be taxable to
shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although the Municipal Money Market
Portfolio generally does not expect to receive net investment income other than
Tax-Exempt Interest and AMT Interest, up to 20% of the net assets of such
Portfolio may be invested in Municipal Obligations that do not bear Tax-Exempt
Interest or AMT Interest, and any taxable income recognized by such Portfolio
will be distributed and taxed to its shareholders.
While none of the Portfolios expects to realize long-term capital gains,
any net realized long-term capital gains, such as gains from the sale of debt
securities and realized market discount on tax-exempt Municipal Obligations,
will be distributed annually. None of the Portfolios will have tax liability
with respect to such gains and the distributions will be taxable to Portfolio
shareholders as long-term capital gains, regardless of how long a shareholder
has held Portfolio shares. The aggregate amount of distributions designated by
each Portfolio as capital gain dividends may not exceed the net capital gain of
such Portfolio for any taxable year, determined by excluding any net capital
loss or 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 each Portfolio's
respective taxable year.
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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 any Portfolio does not qualify as a regulated
investment company, all of its taxable income will be subject to tax at regular
corporate rates without any deduction for distributions to shareholders, and all
distributions will be taxable as ordinary dividends (including amounts derived
from interest on municipal obligations in the case of the Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated investment
companies that do not distribute with respect to each calendar year an amount
equal to 98 percent of their ordinary income for the calendar year plus 98
percent of their capital gain net income for the 1-year period ending on October
31 of such calendar year. The balance of such income must be distributed during
the next calendar year. For the foregoing purposes, a company is treated as
having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, no Portfolio anticipates
incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends (other than exempt interest dividends)
paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
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The foregoing general discussion of Federal income tax consequences is
based on the Code and the regulations issued thereunder as in effect on the date
of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated investment
company" and to be relieved of all or substantially all Federal income taxes,
depending upon the extent of its activities in states and localities in which
its offices are maintained, in which its agents or independent contractors are
located or in which it is otherwise deemed to be conducting business, each
Portfolio may be subject to the tax laws of such states or localities.
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, 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
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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 COMMON STOCK 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 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
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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, Class M Common Stock, and Class N Common Stock constitute the Bedford
Classes. Under the Fund's charter, the Board of Directors has the power to
classify or reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN separate
"families": the RBB Family, the 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 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 INTERESTS IN ONE NON-MONEY 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.
-39-
<PAGE>
As stated in the Prospectus, holders of shares of each class of the Fund
will vote in the aggregate and not by class on all matters, except where
otherwise required by law. Further, shareholders of the Fund will vote in the
aggregate and not by portfolio except as otherwise required by law or when the
Board of Directors determines that the matter to be voted upon affects only the
interests of the shareholders of a particular portfolio. Rule 18f-2 under the
1940 Act provides that any matter required to be submitted by the provisions of
such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a greater vote of
shares of the Fund's common stock (or of any class voting as a class) in
connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, 1735 Market
Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as counsel to the
Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle & Reath, 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
- -40-
<PAGE>
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
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
-41-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Kenneth Farwell and Valerie 11.1
Municipal Money Market Farwell Jt. Ten
Portfolio (Class H) 3854 Sullivan
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
-42-
<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 Assets
(Class I) 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 (CLASS R) 330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT J.C. BRADFORD & CO. 100
OBLIGATIONS MONEY 330 COMMERCE STREET
(CLASS S) NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF 5.1
(CLASS T) MASSACHUSETTS INC.
RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
-43-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH 16.7
AMERICA INC.
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
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 Trust 15.7
Equity Portfolio 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
-44-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Bank of New York 45.3
Portfolio (Class X) Trust APU Buckeye Pipeline
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 Income New England UFCW & Employers' Pension 24.5
Portfolio (Class Y) Fund Board of Trustees
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
-45-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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
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 (Class Z) 14130 Riverside Drive
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 (Class AA) 2199 Maysville Rd.
Carlisle, KY 40311
-46-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
- -47-
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
U S EQUITY INVESTMENT PORTFOLIO LP 18.7
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 (CLASS HH) SPECIAL CUSTODY ACCOUNT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
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 (Class JANNEY Philadelphia, PA 19103-1675
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 Money 1801 Market Street
Market Portfolio Philadelphia, PA 19103-1675
(Class JANNEY N.Y.
MUNICIPAL MONEY)
-48-
<PAGE>
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.
-49-
<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.
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.
A-1
<PAGE>
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
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
11
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
12
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
14
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
-------- ------------
AGENCY OBLIGATIONS--53.8%
FEDERAL FARM CREDIT BANK--8.1%
5.120% 09/04/96(DAGGER) ..................... $ 15,000 $ 14,998,280
5.400% 04/01/97 ............................. 30,000 29,977,099
------------
44,975,379
------------
FEDERAL HOME LOAN BANK--8.1%
5.277% 09/02/96(DAGGER) ..................... 20,000 19,998,784
5.238% 09/20/96(DAGGER) ..................... 15,000 14,999,434
5.560% 10/25/96 ............................. 10,000 9,997,291
------------
44,995,509
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.6%
5.370% 09/03/96(DAGGER) ..................... 10,000 10,000,000
5.410% 09/03/96(DAGGER) ..................... 10,000 9,994,465
5.465% 09/03/96(DAGGER) ..................... 10,000 9,999,787
5.348% 09/06/96(DAGGER) ..................... 20,000 19,992,305
5.337% 09/17/96(DAGGER) ..................... 20,000 19,990,167
5.310% 10/18/96 ............................. 15,000 14,996,237
5.320% 11/21/96(DAGGER) ..................... 25,000 24,992,910
5.270% 11/26/96 ............................. 20,000 19,748,211
5.530% 01/10/97 ............................. 15,000 14,698,154
5.240% 01/15/97 ............................. 15,000 14,703,067
------------
159,115,303
------------
STUDENT LOAN MARKETING ASSOCIATION(DAGGER)--9.0%
5.400% 09/03/96 ............................. 9,000 8,998,786
5.410% 09/03/96 ............................. 5,000 5,000,000
5.420% 09/03/96 ............................. 5,000 4,999,414
5.460% 09/03/96 ............................. 15,000 14,996,128
5.585% 09/03/96 ............................. 3,850 3,851,055
5.610% 09/03/96 ............................. 12,100 12,105,327
------------
49,950,710
------------
TOTAL AGENCY OBLIGATIONS
(Cost $299,036,901) ..................... 299,036,901
------------
PAR
(000) VALUE
------- ------------
U. S. TREASURY OBLIGATIONS--7.2%
U.S. TREASURY NOTES--7.2%
6.875% 02/28/97 ...................... $20,000 $ 20,159,607
6.875% 03/31/97 ...................... 10,000 10,075,608
6.500% 04/30/97 ...................... 10,000 10,050,993
------------
TOTAL U. S. TREASURY
OBLIGATIONS
(Cost $40,286,208) ............... 40,286,208
------------
REPURCHASE AGREEMENTS--38.5%
Aubrey G. Lanston & Co. Inc.
5.200% 09/03/96 ...................... 92,000 92,000,000
(Agreement dated 08/30/96 to be
repurchased at $92,053,156,
collateralized by $44,562,500
U.S. Treasury Bond 6.25% due
08/15/23 and collateralized by
$47,439,700 U.S. Treasury
Notes 7.75% to 8.50% due
12/31/99 to 11/15/00. Market
value of collateral is $92,002,200.)
Donaldson, Lufkin & Jenrette
5.310% 09/03/96 ...................... 102,200 102,200,000
(Agreement dated 08/30/96 to be
repurchased at $102,260,298,
collateralized by $110,810,000
Federal Home Loan Mortgage
Corp. due 08/15/26
Market value of collateral is
$105,270,608.)
Morgan Stanley & Co.
5.270% 09/20/96 ...................... 20,000 20,000,000
(Agreement dated 08/22/96 to be
repurchased at 20,084,906,
collateralized by $25,860,948
Federal Home Loan Mortgage
Corp. 0% to 8.00% due 12/01/09 to
06/15/35. Market value of collateral
is $20,405,022.)
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,200,000) .............. 214,200,000
------------
See Accompanying Notes to Financial Statements.
15
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.5%
(COST $553,523,109*).................. $553,523,109
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5%.................. 3,023,896
------------
NET ASSETS (Applicable to
192,603,016 Bedford shares,
57,191,735 Bradford shares,
306,763,729 Janney Montgomery
Scott shares and 800 other
shares)--100%......................... $556,547,005
============
NET ASSET VALUE, offering and
redemption price per share
($556,547,005 (DIVIDE) 556,559,280)... $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Obligations -- The interest rate is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount shown can be
recovered through demand.
See Accompanying Notes to Financial Statements.
16
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLI0
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Interest .......................................................... $118,092,977 $15,900,230 $30,707,263
------------ ----------- -----------
Expenses
Investment advisory fees .......................................... 7,702,090 1,409,660 2,310,433
Administration fees ............................................... -- 428,209 --
Distribution fees ................................................. 9,304,376 2,427,986 3,236,194
Service organization fees ......................................... 471,499 -- --
Directors' fees ................................................... 38,473 7,715 10,037
Custodian fees .................................................... 345,973 88,191 102,930
Transfer agent fees ............................................... 3,044,149 291,739 610,887
Legal fees ........................................................ 77,139 17,721 20,228
Audit fees ........................................................ 61,049 12,514 16,044
Registration fees ................................................. 434,000 192,999 134,940
Insurance expense ................................................. 43,932 9,056 11,658
Printing fees ..................................................... 426,220 72,100 107,852
Miscellaneous ..................................................... 1,884 387 499
------------ ----------- -----------
21,950,784 4,958,277 6,561,702
Less fees waived .................................................. (3,543,632) (1,236,642) (671,811)
Less expense reimbursement by advisor ............................. (342,158) (17,576) (406,954)
------------ ----------- -----------
Total expenses ............................................... 18,064,994 3,704,059 5,482,937
------------ ----------- -----------
Net investment income ............................................. 100,027,983 12,196,171 25,224,326
------------ ----------- -----------
Realized loss on investments ...................................... (12,987) (674) (10,995)
------------ ----------- -----------
Net increase in net assets resulting from operations .............. $100,014,996 $12,195,497 $25,213,331
============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
---------------------------------- ---------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 100,027,983 $ 64,913,329 $ 12,196,171 $ 9,691,756
Net gain (loss) on investments ............. (12,987) (18,463) (674) 7,009
-------------- -------------- ------------ ------------
Net increase in net assets resulting from
operations ............................... 100,014,996 64,894,866 12,195,497 9,698,765
-------------- -------------- ------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................... (49,874,649) (38,765,552) (5,960,711) (5,717,451)
Bradford Shares .......................... -- -- (3,611,114) (3,266,535)
Cash Preservation shares ................. (10,092) (11,336) (3,746) (5,648)
Janney Montgomery Scott shares ........... (24,434,566) (4,784,092) (2,620,457) (701,975)
RBB shares ............................... (2,630) (2,530) (143) (147)
Sansom Street shares ..................... (25,706,046) (21,349,819) -- --
Dividends to shareholders from net realized
short-term gains:
Bedford shares ........................... -- -- -- --
Bradford shares .......................... -- -- -- --
Janney Montgomery Scott shares ........... -- -- -- --
-------------- -------------- ------------ ------------
Total distributions to shareholders .... (100,027,983) (64,913,329) (12,196,171) (9,691,756)
-------------- -------------- ------------ ------------
Net capital share transactions ............... 374,464,737 736,630,198 (1,864,843) 140,043,103
-------------- -------------- ------------ ------------
Total increase (decrease) in net assets ...... 374,451,750 736,611,735 (1,865,517) 140,050,112
Net Assets:
Beginning of year .......................... 1,821,371,688 1,084,759,953 422,753,863 282,703,751
-------------- -------------- ------------ ------------
End of year ................................ $2,195,823,438 $1,821,371,688 $420,888,346 $422,753,863
============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 25,224,326 $ 12,855,095
Net gain (loss) on investments ............. (10,995) 41,241
------------ ------------
Net increase in net assets resulting from
operations ............................... 25,213,331 12,896,336
------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................... (8,829,111) (7,551,189)
Bradford Shares .......................... (2,208,959) (2,071,772)
Cash Preservation shares ................. -- --
Janney Montgomery Scott shares ........... (14,186,256) (3,232,134)
RBB shares ............................... -- --
Sansom Street shares ..................... -- --
Dividends to shareholders from net realized
short-term gains:
Bedford shares ........................... (12,697) --
Bradford shares .......................... (3,154) --
Janney Montgomery Scott shares ........... (18,204) --
------------ ------------
Total distributions to shareholders .... (25,258,381) (12,855,095)
------------ ------------
Net capital share transactions ............... 44,099,699 306,300,108
------------ ------------
Total increase (decrease) in net assets ...... 44,054,649 306,341,349
Net Assets:
Beginning of year .......................... 512,492,356 206,151,007
------------ ------------
End of year ................................ $556,547,005 $512,492,356
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------- -
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------- -
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ........... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations........................ 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)............................. (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital gains) ... -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions ............... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return............................ 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ........ $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets.......................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets .............. 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) ........... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations........................ 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)............................. (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital gains) ... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............................ 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ........ $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets.......................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets .............. 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................... 0.0458 0.0475 0.0270 0.0231 0.0375
Net gains on securities
(both realized and unrealized)............ -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations......... 0.0458 0.0475 0.0270 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income)...... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from capital gains).......... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions...................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 1.00 $ 1.00 $ 1 .00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return.................................. 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios /Supplemental Data
Net assets, end of year (000)............... $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average net assets. .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income to average
net assets................................ 4.58% 4.75% 2.70% 2.31% 3.75%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses average net assets for
the Government Obligations Money Market Portfolio would have been 1.10%,
1.13%, 1.17%, 1.18% and 1.12% for the years ended August 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, Janney
Montgomery Scott Money Family, the n/i Family and the Bradford Family. The
Bedford Family represents interests in four portfolios, three of which are
covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
will be distributed at least annually. Income distributions and capital
gain distributions are determined in accordance with tax regulations which
may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
21
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly subsidiary of PNC Asset Management Group, Inc.,
which is in turn a wholly owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for the three portfolios described
herein. PNC Bank serves as the sub-advisor for the Money Market, the Municipal
Money Market and the Government Obligations Money Market Portfolios.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on each of the three portfolio's
average daily net assets:
PORTFOLIO ANNUAL RATE
--------------------------- ---------------------------------------------
Money Market and Government .45% of first $250 million of net assets;
Obligations Money Market .40% of next $250 million of net assets
Portfolios .35% of net assets in excess of $500 million.
Municipal Money Market .35% of first $250 million of net assets;
Portfolio .30% of next $250 million of net assets;
.25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
three investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ----------- ----------
<S> <C> <C> <C>
Money Market Portfolio $7,702,090 $(3,527,715) $4,174,375
Municipal Money Market Portfolio 1,409,660 (1,218,973) 190,687
Government Obligations Money Market Portfolio 2,310,433 (671,811) 1,638,622
</TABLE>
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
22
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the three
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- ---------- ---------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total Money Market Portfolio $3,044,149 $(15,917) $3,028,232
========== ======== ==========
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
---------- -------- ----------
Total Municipal Money Market Portfolio $ 291,739 $(17,669) $ 274,070
========== ======== ==========
Government Obligations Money Market Portfolio
Bedford Class $ 81,107 $ -- $ 81,107
Bradford Class 11,935 -- 11,935
Janney Montgomery Scott Class 517,845 -- 517,845
---------- -------- ----------
Total Government Obligations Money Market Portfolio $ 610,887 $ -- $ 610,887
========== ======== ==========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
Portfolio. The administration fee is computed daily and payable monthly at an
annual rate of .10% of the Portfolio's average daily assets. For the year ended
August 31, 1996, the administration fee for the Municipal Money Market Portfolio
was as follows:
ADMINISTRATION
FEE
--------------
Municipal Money Market Portfolio $428,209
The Fund, on behalf of each class of shares within the three investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott and RBB Classes and up to .20% on an
annualized basis for the Sansom Street Class.
23
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31,1996, distribution fees for each class within
the three investment Portfolios were as follows:
DISTRIBUTION
FEE
------------
Money Market Portfolio
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
----------
Total Money Market Portfolio $9,304,376
==========
Municipal Money Market Portfolio
Bedford Class $1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
----------
Total Municipal Money Market Portfolio $2,427,986
==========
Government Obligations Money Market Portfolio
Bedford Class $1,091,847
Bradford Class 275,120
Janney Montgomery Scott Class 1,869,227
----------
Total Government Obligations Money Market Portfolio $3,236,194
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
24
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277 $ 1,022,457,772 $ 1,104,088,188
Bradford Class -- -- 479,401,891 474,166,249
Cash Preservation Class 122,344 84,527 171,907 175,548
Janney Montgomery Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881
RBB Class 584,206 31,504 69,480 5,004
Sansom Street Class 2,191,596,362 1,864,628,110 -- --
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408
Bradford Class -- -- 3,506,714 3,126,860
Cash Preservation Class 10,084 11,226 3,515 5,478
Janney Montgomery Scott Class 24,077,173 4,534,944 2,602,869 662,565
RBB Class 2,625 2,500 143 146
Sansom Street Class 18,389,361 16,689,941 -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142)
Bradford Class -- -- (464,445,579) (466,448,018)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391)
RBB Class (580,821) (23,917) (69,419) (5,072)
Sansom Street Class (2,127,237,313) (1,813,444,951) -- --
------------- ------------- ------------- ---------------
Net increase (decrease) $ 374,464,737 $ 736,630,198 $ (1,864,843) $ 140,043,103
=============== =============== ============= ===============
Bedford Shares authorized 1,500,000,000 1,500,000,000 500,000,000 500,000,000
=============== =============== ============= ===============
</TABLE>
25
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES (CONTINUED)
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $ 663,889,198 $ 461,728,190
Bradford Class 180,761,217 192,414,935
Janney Montgomery Scott Class 1,160,250,876 533,143,649
Shares issued in reinvestment
of dividends:
Bedford Class 8,793,104 7,147,384
Bradford Class 2,158,629 2,029,050
Janney Montgomery Scott Class 14,080,097 3,065,158
Shares repurchased:
Bedford Class (643,470,937) (471,908,601)
Bradford Class (172,234,746) (187,671,346)
Janney Montgomery Scott Class (1,170,127,739) (233,648,311)
--------------- -------------
Net increase $ 44,099,699 $ 306,300,108
=============== =============
Bedford Shares authorized 500,000,000 500,000,000
=============== =============
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------
<S> <C> <C> <C>
Capital paid-in:
Bedford Class $1,109,351,734 $202,009,609 $192,603,016
Bradford Class -- 129,398,582 57,191,735
Cash Preservation Class 202,360 115,765 --
Janney Montgomery Scott Class 561,873,247 89,426,172 306,763,729
RBB Class 61,412 5,143 --
Sansom Street Class 524,367,399 -- --
Other Classes 800 800 800
Accumulated net realized gain (loss)
on investments:
Bedford Class (17,400) (69,803) (4,248)
Bradford Class -- 339 (1,261)
Cash Preservation Class (3) 5 --
Janney Montgomery Scott Class (7,821) 1,734 (6,766)
RBB Class (1) -- --
Sansom Street Class (8,289) -- --
-------------- ------------ ------------
$2,195,823,438 $420,888,346 $556,547,005
============== ============ ============
</TABLE>
26
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $33,513 in the Money Market Portfolio of which of
which $2,062 expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004;
$67,725 in the Municipal Money Market Portfolio of which $55,760 expires in
1999, $444 expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002, $674
expires in 2004; and $12,275 in the Government Obligations Money Market
Portfolio which expires in 2004.
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Money Market Portfolio: Cash Preservation, Janney Montgomery
Scott, RBB and Sansom Street. The Fund currently offers four other classes of
shares representing interests in the Municipal Money Market Portfolio: Bradford,
Cash Preservation, Janney Montgomery Scott and RBB. The Fund currently offers
two other class of shares representing an interest in the Government Obligations
Money Market Portfolio: Bradford and Janney Montgomery Scott. Each class is
marketed to different types of investors. Financial Highlights of the RBB and
Cash Preservation Classes are not presented in this report due to their
immateriality. Such information is available in the annual reports of each
respective family. The financial highlights of certain of the other classes are
as follows:
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities (both realized
and unrealized) ........................ -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations ..... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ... (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions .................. (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ................................ 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) .......... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average net assets . .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income to
average net assets ..................... 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994, and 1993, respectively and 1.15% annualized for the
period end August 31, 1992. (b) Annualized.
</FN>
</TABLE>
27
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31,1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income ..................... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- ------- -------
Total from investment operations ...... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- ------- -------
Less distributions
Dividends (from net investment income) .... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- ------- -------
Total distributions ................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- ------- -------
Net asset value, end of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total Return ................................. 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ........... $129,399 $110,936 $100,089 $76,975 $69,586
Ratios of expenses to average net assets .. .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets ....................... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
28
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- -------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ----------- -------- ---------- -------- ----------
Income from investment
operations:
Net investment income 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
--------- ----------- -------- ---------- -------- ----------
Total from investment
operations 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
--------- ----------- -------- ---------- -------- ----------
Less distributions
Dividends (from net
investment income) (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
--------- ----------- -------- ---------- -------- ----------
Total distributions (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
--------- ----------- -------- ---------- -------- ----------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== =========== ======== ========== ======== ===========
Total Return 4.76% 5.30%(b) 2.81% 2.87%(b) 4.66% 5.03%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) $561,865 $ 443,645 $ 89,428 $ 113,226 $306,757 $ 302,585
Ratios of expenses to
average net assets 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b) 1.00%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets 4.65% 5.04%(b) 2.78% 2.83%(b) 4.56% 4.91%(b)
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.23% for
the year ended August 31, 1996 and 1.23% annualized for the period ended
August 31, 1995. For the Municipal Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.23% for the year ended
August 31, 1996 and 1.30% annualized for the period ended August 31, 1995.
For the Government Obligations Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.25% for the year ended
August 31, 1996 and 1.28% annualized for the period ended August 31, 1995.
(b) Annualized.
</FN>
</TABLE>
29
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ......................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) .............................. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment operations ........... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ........ (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains) ............ -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ........................ (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .................................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year ....................... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets ...... .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to average
net assets ................................... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory and transfer agent 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 .65%,
.59%, .60%, .60% and .61% for the years ended August 31, 1996, 1995, 1994,
1993 and 1992, respectively.
</FN>
</TABLE>
30
<PAGE>
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.
- ---------------------------------------------------
CONTENTS
PAGE
Introduction ................................ 2
Financial Highlights ........................ 3
Investment Objectives and Policies .......... 5
Purchase and Redemption of Shares ........... 8
Management .................................. 12
Distribution of Shares ...................... 14
Dividends and Distributions ................. 15
Taxes ....................................... 15
Description of Shares ....................... 16
Other Information ........................... 17
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
BEDFORD
MUNICIPAL MONEY MARKET PORTFOLIO
of
The RBB Fund, Inc.
The investment objective of the Municipal Money Market Portfolio is to
provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio (the "Portfolio") seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular Federal
income tax but which may constitute an item of tax preference for purposes of
the Federal alternative minimum tax. The Bedford shares of the Municipal Money
Market Portfolio are a class of shares (the "Class") of common stock of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company. Shares of
the Class ("Shares") are offered by this Prospectus and represent interests in
such Portfolio.
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 Bank, or any other agency. Investment in Shares of the Fund involve
investment risks, including the possible loss of principal.
Counsellors Securities Inc. acts as distributor for the Fund, PNC
Institutional Management Corporation serves as investment adviser for the
Portfolio, PNC Bank, National Association serves as sub-adviser for the
Portfolio and custodian for the Fund and PFPC Inc. serves as administrator to
the Portfolio and 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
1
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. 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 Municipal Money Market Portfolio.
The investment objective of the Municipal Money Market Portfolio (the
"Portfolio") is to provide as high a level of current interest income exempt
from Federal income tax as is consistent with maintaining liquidity and
stability of principal. To achieve this objective, the Municipal Money Market
Portfolio invests substantially all of its assets in a diversified portfolio of
short-term Municipal Obligations which meet certain ratings criteria and present
minimal credit risks to the Portfolio. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular Federal
income tax, but which may constitute an item of tax preference for purposes of
the Federal alternative minimum tax.
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 Portfolio's investment adviser is PNC Institutional Management
Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank") serves as
sub-adviser of the Portfolio and custodian for the Fund, and PFPC Inc. ("PFPC")
serves as administrator to the Portfolio and 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 through his broker or by direct
purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Portfolio 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 purchase
of securities on a "when-issued" basis and the purchase of stand-by commitments.
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."
<TABLE>
<CAPTION>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<S> <C>
Management fees (after waivers)(1) .05%
12b-1 fees (after waivers)(1) .55
Other Expenses (after reimbursements) .24
----
Total Fund Operating Expenses
(Bedford Shares) (after waivers
and reimbursements) .84%
----
----
</TABLE>
(1) Management fees and 12b-1 fees are based on average daily net assets and
are calculated daily and paid monthly.
(2) Before ExpenseReimbursements andWaivers for the Bedford Municipal Money
Market Portfolio, Management fees would be .33%, 12b-1 fees would be .55%;
Other Expenses would be .24% and Total Fund Operating Expenses would be
1.12%.
2
<PAGE>
<TABLE>
<CAPTION>
Example*
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
<S> <C> <C> <C> <C>
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: $9 $27 $47 $104
</TABLE>
* 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
(Bedford 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 Shares will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management--Investment Adviser and Sub-Advisor," and "Distribution of
Shares" below.) Expense figures are based on actual costs 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 a 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 Class 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 Class refers to the income
generated by an investment in the Class 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 the Class 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 "tax-equivalent yield" of
the Class may also be quoted from time to time, which shows the level of taxable
yield needed to produce an after-tax equivalent to the tax-free yield of the
Class. This is done by increasing the yield of the Class (calculated as above)
by the amount necessary to reflect the payment of Federal income tax at a stated
tax rate.
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 the Class are not reflected in the yield 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
Portfolio depending on the allocation of expenses to each class of the
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Bedford Class of the Municipal Money Market Portfolio for the
periods indicated. The financial data included in this table for each of the
periods ended August 31, 1992 through August 31, 1996, are a part of the Fund's
financial statements 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 such Portfolio for the periods ended August
31, 1989, 1990 and 1991 are a part of previous financial statements audited by
Coopers & Lybrand L.L.P. The financial data included in this table should be
read in conjunction with the financial statements and related notes included in
the Statement of Additional Information.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC. FINANCIAL HIGHLIGHTS (C)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Municipal Money Market Portfolio
-----------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0288 0.0297 0.0195 0.0195 0.0287 0.0431 0.0522 0.0513
Net gains on securities
both realized
and unrealized) -- -- -- -- -- -- -- --
------- -------- ------- ------- ------- ------ ------ ------
Total from investment
operations 0.0288 0.0297 0.0195 0.0195 0.0287 0.0431 0.0522 0.0513
---------- --------- --------- --------- --------- ------- ------- ------
Less distributions
Dividends (from net
investment income) (0.0288) (0.0297) (0.0195) (0.0195) (0.0287) (0.0431) (0.0522) (0.0513)
Distributions (from
capital gains) -- -- -- -- -- -- -- --
--------- --------- --------- ------- --------- ------ --------- -------
Total distributions (0.0288) (0.0297) (0.0195) (0.0195) (0.0287) (0.0431) (0.0522) (0.0513)
--------- --------- --------- --------- --------- --------- --------- --------
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- -------- -------- --------- --------- --------- --------- ---------
----------- -------- -------- --------- --------- --------- --------- ---------
Total return 2.92% 3.01% 1.97% 1.96% 2.90% 4.40% 5.35% 5.72%(b)
Ratios/Supplemental Data
Net Assets, end of
period (000) $201,940 $198,425 $182,480 $215,577 $176,950 $215,140 $195,566 $ 85,806
Ratios of expenses to
average net assets .84%(a) .82%(a) .77%(a) .77%(a) .77%(a) .74%(a) .75%(a) .73%(a)(b)
Ratios of net investment
income to average
net assets 2.88% 2.97% 1.95% 1.95% 2.87% 4.31% 5.22% 5.70%
</TABLE>
(a) Without the waiver of advisory and administration fees, and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Municipal Money Market Portfolio would have been
1.12%, 1.14%, 1.12%, 1.16%, 1.15%, 1.13% and 1.14% 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 Bedford Class of shares within
the Portfolio.
- --------------------------------------------------------------------------------
4
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax and which meet certain ratings
criteria and present minimal credit risks. See "Eligible Securities". During
periods of normal market conditions, at least 80% of the net assets of the
Municipal Money Market Portfolio will be invested in Municipal Obligations.
Municipal Obligations include securities the interest on which is exempt from
the regular Federal income tax and is not an item of tax preference for purposes
of the Federal alternative minimum tax ("Tax-Exempt Interest"), although to the
extent the Portfolio invests in certain private activity bonds issued after
August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of the interest
earned by the Portfolio may constitute an item of tax preference for purposes of
the Federal alternative minimum tax ("AMT Interest").
Municipal Obligations. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase securities that are unrated at the time of purchase provided that such
securities are determined to be of comparable quality to eligible rated
securities by the Portfolio's investment adviser in accordance with guidelines
approved by the Fund's Board of Directors. The applicable Municipal Obligations
ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by the
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 one year, 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
5
<PAGE>
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
When-Issued Securities. The Portfolio may also 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.
Tax-Exempt Derivative Securities. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
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
6
<PAGE>
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.
Eligible Securities. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include U.S. Government securities, securities that are
rated at the time of purchase in the highest rating category by at least two
unaffiliated nationally recognized statistical rating organizations ("NRSROs")
for such securities (e.g., commercial paper rated "A-1" or "A-2" by Standard &
Poor's Corporation ("S&P"), or rated "Prime-1" or "Prime-2" by Moody's Investors
Service, Inc. ("Moody's")) and 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 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 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 Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
the affirmative vote of the holders of a majority of the Municipal Money Market
Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The Municipal Money
Market Portfolio may not, however, change the following investment limitations
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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary purposes 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 the lesser of the dollar amounts
borrowed or 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,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
7
<PAGE>
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
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 Investment Company Act
of 1940 (the "1940 Act"), the Municipal Money Market Portfolio will meet the
following limitation on its investments in addition to the fundamental
investment limitations described above. This limitation may be changed without a
vote of shareholders of the Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
Purchase Procedures
General. Shares are sold without a sales load on a continuous basis by the
Distributor. The Distributor is located at 466 Lexington Avenue, New York, New
York. Investors may purchase Shares through an account maintained by the
investor with his brokerage firm (an "Account") and may also purchase Shares
directly by mail or bank wire. The minimum initial investment is $1,000, and the
minimum subsequent investment is $100. The Fund in its sole discretion may
accept or reject any order for purchases of 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 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
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
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 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
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<PAGE>
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.
A broker may offer investors maintaining Accounts the ability to purchase
Shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have his "free-credit" cash balances in his Account automatically invested in
Shares. The frequency of investments and the minimum investment requirement will
be established by the broker and the Fund. In addition, the broker may require a
minimum amount of cash and/or securities to be deposited in an Account for
participants in its Purchase Program. The description of the particular broker's
Purchase Program should be read for details, and any inquiries concerning an
Account under a Purchase Program should be directed to the broker.
If a broker makes special arrangements under which orders for 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.
Direct Purchases. An investor may also make direct investments in Shares at
any time through any broker that has entered into a dealer agreement with the
Distributor (a "Dealer"). An investor may make an initial investment by mail by
fully completing and signing an application obtained from a Dealer (an
"Application") and mailing it, together with a check payable to "Bedford
Municipal Money Market" c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. An
Application will be returned to the investor unless it contains the name of the
Dealer from whom it was obtained. Subsequent purchases may be made through a
Dealer or 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 Dealer wire Federal Funds to the Fund's
Custodian, PNC Bank, National Association. An investor's bank or Dealer 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) 533-7719 (in
Delaware call collect (302) 791-1196), and provide it with your name, address,
telephone number, Social Security or Tax Identification Number, 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 Dealer to wire the specified amount, together with
your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with 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.
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.
9
<PAGE>
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 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 next 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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request to Bedford Municipal Money Market,
c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. 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). You may call the Transfer Agent at (800) 533-7719 to
determine whether the entity that will guarantee the signature is an eligible
guarantor. Guarantees must be signed by an authorized signatory of the bank,
trust company or member firm and "Signature Guaranteed" must appear with the
signature.
Direct 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) 533-7719 (in Delaware call collect (302) 791-1196).
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. There is no minimum redemption for proceeds mailed by check; however,
the maximum redemption for proceeds mailed by check is $25,000. 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. Neither PFPC nor the
Fund will be liable for any loss, liability, cost or expense for following the
procedures described 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
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<PAGE>
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 (6) business days of the call; and 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 checkwriting privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker/dealer may establish a higher minimum. An investor
wishing to use this check writing redemption procedure should complete specimen
signature cards, and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own Shares
through an Account should contact their brokers for signature cards. Investors
with 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
equaling 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 cashed at other banks.
Additional Redemption Information. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
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.
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, President's 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,
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<PAGE>
Jr. Day, Veterans Day and Columbus Day. The 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 the 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 of the
Fund 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 Municipal Money Market Portfolio is one of such portfolios.
Investment Adviser and Sub-Adviser
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for the Municipal Money Market 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 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 the 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 Portfolio's 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 Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed
daily and payable monthly, at an annual rate of .35% of the first $250 million
of the Portfolio's average daily net assets, .30% of the next $250 million of
the Portfolio's average daily net assets and .25% of the average daily net
assets of the Portfolio 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 administra-
12
<PAGE>
tive obligations under its advisory agreement 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 .05% of the average net assets of the Portfolio. For
that same year, PIMC waived approximately .28% of investment advisory fees
payable to it with respect to the Portfolio.
Administrator
PFPC serves as the administrator for the Municipal Money Market Portfolio
and generally assists the Portfolio in all aspects of its administration and
operation, including matters relating to the maintenance of financial records
and accounting. PFPC is entitled to an administration fee, computed daily and
payable monthly at a rate of .10% of the average daily net assets of the
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 of shares of the
Fund, the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund, 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 the
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, reimbursement of such amounts will have the
effect of increasing the Portfolio's expense ratio and of decreasing yield to
investors.
13
<PAGE>
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were 1.12% of average net assets with respect to the Bedford Class of the
Municipal Money Market Portfolio (not taking into account waivers and
reimbursements of .28%).
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 pursuant to a distribution
contract (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. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Under the
Distribution 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. Such
compensation may be increased, up to the amount permitted in the Plan, with the
approval of the Fund's Board of Directors. 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 such Class
does not exceed the income of such Class on that day. In addition, the
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Under 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 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, the Plan 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.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of the Municipal Money Market Portfolio to
the Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares 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 Portfolio and its 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, the
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 currently 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 Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" in their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
subject to alternative minimum tax at a rate of 24% in the case of individuals,
trusts and estates, and 20% in the case of corporate taxpayers. First,
tax-exempt interest and "exempt interest dividends" derived from certain private
activity bonds issued after August 7, 1986, will generally constitute an item of
tax preference for corporate and noncorporate taxpayers in determining
alternative minimum tax liability. Although it does not currently intend to do
so, the Portfolio may invest up to 100% of its net assets in such private
activity bonds. Secondly, tax-exempt interest and "exempt interest dividends"
derived from all other Municipal Obligations must be taken into account by
corporate taxpayers in determining their adjusted current earnings adjustment
for alternative minimum tax purposes. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax,
15
<PAGE>
and which are fully taxable and will apply such percentages uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Ordinarily, shareholders will
include all dividends declared by the Fund in income in the year of payment.
However, 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 and paid by the Fund on
December 31 of such year, if such dividends are paid during January of the
following year. The Fund intends to make sufficient actual or deemed
distributions with respect to the Municipal Money Market Portfolio 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. Shares of the Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts since
such plans and accounts are generally tax-exempt and, therefore, not only would
not gain any additional benefit from the Portfolio's dividends being tax-exempt
but also such dividends would be taxable when distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Fund which may
differ from the Federal income tax consequences described above.
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 the 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 BEDFORD SHARES OF THE MUNICIPAL MONEY MARKET
PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO SUCH SHARES.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares will be fully paid
and non-assessable.
16
<PAGE>
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 when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of common stock of the Fund may elect all of
the directors.
As of 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) 533-7719 (in Delaware call collect
(302) 791-1196).
17
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<PAGE>
BEDFORD MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIO OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to a class of shares (the "Class") of The
RBB Fund, Inc. representing interests in the Municipal Money Market Portfolio
(the "Portfolio"). This Statement of Additional Information is not a prospectus,
and should be read only in conjunction with the Bedford Municipal Money Market
Portfolio Prospectus of The RBB Fund, Inc, 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 2
Investment Objectives and Policies........................2 5
Directors and Officers....................................7 N/A
Investment Advisory, Distribution and
Servicing Arrangements...........................10 12
Portfolio Transactions...................................15 N/A
Purchase and Redemption Information......................16 8
Valuation of Shares......................................17 12
Taxes .................................................19 15
Additional Information Concerning
Fund Shares......................................24 15
Miscellaneous............................................26 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 "Shares") representing
interests in the Municipal Money Market Portfolio of the Fund. The Shares are
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 OBJECTIVE AND POLICIES
The following supplements the information contained in the
Prospectus concerning the investment objective 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.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the 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
Portfolio and whether a variable rate demand instrument has a remaining maturity
of 397 calendar days or less, each instrument will be deemed by the Portfolio to
have a maturity equal to the longer of the period remaining until its next
interest rate adjustment or the period remaining until the principal amount can
be recovered through demand. In determining whether an unrated variable rate
demand instrument is an eligible security, the Portfolio's investment adviser
will follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the 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
-2-
<PAGE>
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 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
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 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 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 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. The Portfolio's reliance upon the credit
of these dealers, banks and broker-dealers will be secured by the value of the
underlying Municipal Obligations that are subject to the commitment.
The Portfolio will acquire stand-by commitments solely to
facilitate portfolio liquidity and does not intend to exercise its 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
-3-
<PAGE>
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.
ELIGIBLE SECURITIES. The Portfolio will only purchase
"eligible securities" that present minimal credit risks as determined by the
Portfolio's investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include (1) U.S. Government securities;
(2) securities that (a) are rated (at the time of purchase) by two more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's, or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b) above ("comparable obligations"); (4) securities that are not
rated and are issued by an issuer that does not have comparable obligations
rated by an NRSRO ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to a security satisfying (2) or (3)
above; and (5) long-term obligations that have remaining maturities in excess of
397 calendar days that are subject to a demand feature or put (such as a
guarantee, a letter of credit or similar credit enhancement) ("demand
instrument") (a) that are unconditional (readily exercisable in the event of
default), provided that the demand feature satisfies (2), (3) or (4) above, or
(b) that are not unconditional, provided that the demand feature satisfies (2),
(3) or (4) above, and the demand instrument or long-term obligations of the
issuer satisfy (2) or (4) above for long-term debt obligations.
ILLIQUID SECURITIES. The Portfolio may not invest more than
10% of its net assets in illiquid securities, 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.
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") and securities which are otherwise not readily marketable. 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
-4-
<PAGE>
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 municipal securities. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities 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, 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 Portfolio may not:
(1) borrow money, except from banks for temporary
purposes 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 percent for all
borrowings of the Portfolio; or mortgage, pledge, hypothecate any of
its assets except in connection with any such borrowing and then in
amounts not in excess of the lesser of the dollar amounts borrowed or
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
-5-
<PAGE>
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 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 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;
(4) underwrite securities of other issuers, except
to the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(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;
(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
-6-
<PAGE>
(11) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the Portfolio may not (i) under normal market conditions invest
less than 80% of its net assets in securities the interest on which is exempt
from the regular Federal income tax, although the interest on such securities
may constitute an item of tax preference for purposes of the Federal alternative
minimum tax, (ii) invest in private activity bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operations; and (iii)
purchase any securities which would cause, at the time of purchase, more than
25% of the value of the total assets of the Portfolio to be invested in the
obligations of the issuers in the same industry.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lessor 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.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the Municipal
Money Market Portfolio has more than 5% of its total assets invested
in instruments issued by or subject to Puts from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Municipal Money Market Portfolio's total assets.
A "Put" means a right to sell a specified underlying instrument within
a specified period of time and at a specified exercise price that may
be sold, transferred or assigned only with the underlying instrument.
In order to permit the sale of 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
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:
-7-
<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ -----------------------
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since OCTOBER 1996, SENIOR
110 Wall Street VICE PRESIDENT OF
New York, NY 10005 FAHNESTOCK & CO., INC.
1985 TO 1996, Executive
Vice President of
Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc.
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, Inc.) (shopping
centers); and Since 1975,
Director and Executive Vice
President, Cellucap Mfg.
Co., Inc. (manufacturer of
disposable headwear).
-8-
<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ -----------------------
Julian A. Brodsky - 63 Director Director, and Vice Chairman
1234 Market Street Comcast Corporation;
16th Floor Director, Comcast
Philadelphia, PA 19107- Cablevision of Philadelphia
3723 (cable television and
communications) and Nextel
(Wireless Communications).
Donald van Roden - 72 Director Self-employed
1200 Old Mill Lane businessman. From February
Wyomissing, PA 19610 1980 to March 1987, Vice
Chairman, SmithKline
Beckman Corporation
(pharmaceuticals);
Director, AAA
Mid-Atlantic (auto
service); Director,
Keystone Insurance Co.
Edward J. Roach - 72 President and Treasurer Certified Public
Suite 100 Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee Emeritus,
Pennsylvania School for the
Deaf; Trustee Emeritus,
Immaculata College; Vice
President and Treasurer of
various investment
companies advised by PNC
Institutional Management
Corporation.
Morgan R. Jones - 57 Secretary Chairman, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia, Pennsylvania;
Philadelphia, PA 19107 Director, Rocking Horse
Child Care Centers of
America, Inc.
- -------------------------
* 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,
-9-
<PAGE>
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 $12,520
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 Portfolio's sub-ADVISER and the Fund's
custodian, PFPC Inc. ("PFPC"), the Portfolio's administrator and the Fund's
transfer and dividend disbursing agent, and Counsellors Securities Inc. (the
"Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
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
-10-
<PAGE>
renders advisory services to the Portfolio pursuant to an Investment Advisory
Agreement dated April 21, 1993, and PNC Bank renders sub-advisory services to
the Portfolio pursuant to a Sub-Advisory Agreement, dated August 16, 1988. The
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) $190,687 ADVISORY FEES WITH RESPECT TO MUNICIPAL MONEY MARKET PORTFOLIO
AND WAIVED $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY
MARKET PORTFOLIO UNDER ITS CONTRACT WITH THE FUND. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio and waived $1,041,321 of advisory fees with
respect to the Municipal Money Market Portfolio under its contract with the
Fund. For the year ended August 31, 1994, PIMC received (after waivers) $7,773
in advisory fees with respect to the Municipal Money Market Portfolio and waived
$1,091,646 of advisory fees with respect to the Municipal Money Market Portfolio
under its contract with the Fund.
As required by various state regulations, PIMC will reimburse
the Fund or the Portfolio (as applicable) if and to the extent that the
aggregate operating expenses of the Fund or the Portfolio 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 the 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 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
-11-
<PAGE>
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 the 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 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 Investment Advisory
Agreement was approved by shareholders of the Portfolio at a special meeting
held June 10, 1992, as adjourned. The Sub-Advisory Agreement was approved 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. Each of the Advisory Contracts may also be terminated by PIMC
or PNC Bank, respectively, on 60 days' written notice to the Fund. Each of the
Advisory Contracts terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENT. PFPC serves as the administrator to
the Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (the "Administration Agreement.") PFPC has agreed to
furnish to the Fund on behalf of the Portfolio statistical and research data,
clerical, accounting and bookkeeping services and certain other services
required by the Fund. In addition, PFPC has agreed to prepare and file various
reports with the appropriate regulatory agencies and prepare materials
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required by the SEC or any state securities commission having jurisdiction over
the Fund.
The Administration Agreement provides that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or the Portfolio in connection with the performance of the Agreement,
except a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreement, PFPC receives a fee
of .10% of the average daily net assets of the Portfolio.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated April 10,
1991, 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 the 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 Shares pursuant to a Transfer Agency Agreement
dated August 16, 1988 (the "Transfer Agency Agreement"), under which PFPC (a)
issues and redeems Shares, (b) addresses and mails all communications by the
Portfolio to record owners of Shares, 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 classes of the Fund. 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 via 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.
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<PAGE>
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
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 AGREEMENT. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplement (the
"Distribution Contract"), entered into by the Distributor and the Fund with
respect to the Shares, and a Plan of Distribution for the Shares (the "Plan"),
both of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute the
Shares. 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 was most recently approved for continuation, as
amended, 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"), on July 10, 1996. The Plan was also approved by
shareholders 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 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 Shares under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Shares; 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.
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<PAGE>
During the year ended August 31, 1996, the Fund paid
distribution fees to the Fund's Distributor under the Plan for the Bedford Class
of the Municipal Money Market Portfolio in the aggregate amount of $1,139,416,
of which amount $1,118,274 was paid to dealers with whom the Distributor had
entered into sales agreements and $21,142 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 year, the Distributor waived no distribution fees for the
Bedford Class of the Municipal Money Market Portfolio. The Fund believes that
the 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 Plans 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, and may purchase variable rate
securities with remaining maturities of 397 calendar day 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 intends to purchase only securities with remaining maturities of
one year or less, its portfolio turnover rate 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
the 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 does not 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
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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 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.
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<PAGE>
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 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 AS 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,
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which include a review of the extent of any deviation of net asset value per
share, based on available market quotations, from the $1.00 amortized cost per
share. Should that deviation exceed 1/2 of 1% for the Portfolio, the Board of
Directors will promptly consider whether any action should be initiated to
eliminate or reduce material dilution or other unfair results to shareholders.
Such action may include redeeming shares in kind, selling portfolio securities
prior to maturity, reducing or withholding dividends, and utilizing a net asset
value per share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments to those United States dollar-denominated
instruments that PIMC determines are eligible securities and 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 current and effective yields of
Shares of the Class are computed using standardized methods required by the SEC.
The annualized yield for Shares of the Class is 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 ended August 31, 1996
for the Shares of the Class was 2.81%, and the effective yield for the same
period was 2.85%. The tax equivalent yield for the same period for the Shares
was 3.90% (assuming an income tax rate of 28%).
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Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yield of Shares of the Class will
fluctuate, it cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests, 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 the Portfolio should continue to hold
the obligation.
From time to time, in advertisements or in reports to
shareholders, the yield of Shares of the Class 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 Shares of the Class may be
compared to the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the 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 Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or its 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.
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The Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, the Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the 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 (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.
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In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of the Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which the Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of the Portfolio's total assets may be invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Portfolio controls and which are engaged in the same or similar trades
or businesses (the "Asset Diversification Requirement").
The Municipal Money Market Portfolio is designed to provide
investors with current tax-exempt interest income. In order for the Portfolio to
pay exempt interest dividends during any taxable year, at the close of each
fiscal quarter at least 50% of the value of the Portfolio must consist of exempt
interest obligations. Exempt interest dividends distributed to shareholders by
the Portfolio are not included in the shareholder's gross income for regular
Federal income tax purposes.
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 Portfolio may not be an appropriate investment for
entities which are "substantial users" of facilities financed by private
activity bonds or "related persons" thereof. "Substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his trade or business and (a) whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, (b)
who occupies more than 5% of the entire usable area of such facilities, or (c)
for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
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persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
The 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.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Portfolio is not deductible for income tax purposes if
(as expected) the Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by the
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations) 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. Although the
Portfolio generally does not expect to receive net investment income other than
Tax-Exempt Interest and AMT Interest, up to 20% of the net assets of the
Portfolio may be invested in Municipal Obligations that do not bear Tax-Exempt
Interest or AMT Interest, and any taxable income recognized by the Portfolio
will be distributed and taxed to its shareholders.
While the Portfolio does not 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 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 taxable
year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions between capital gain and ordinary income distributions. The
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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 the taxable years beginning before 1996, provisions
phasing out personal exemptions and limiting itemized deductions may cause the
actual maximum marginal rate to exceed 31%. The maximum rate on the net capital
gain of individuals, trusts and estates, however, is in all cases 28%. Capital
gains and ordinary income of corporate taxpayers are taxed 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 one-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, the Portfolio does not
anticipate incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
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
-23-
<PAGE>
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Portfolio may be subject to the tax laws of such states
or localities.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund 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, 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 COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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
-24-
<PAGE>
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 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 M 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
-25-
<PAGE>
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 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-MONEY
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
the portfolio only if approved by the holders of a majority of the outstanding
voting securities of the 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)
-26-
<PAGE>
in connection with any corporate action, unless otherwise provided by law (for
example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. Peter M. Mattoon, a partner in
that firm, is a director of PNC Bank. 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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
4943 King Arthur Drive
Erie, PA 16506
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
JOHN Robert Estrada and 16.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
ERIC Levine and Linda & Howard Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
</TABLE>
-29-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light Co. Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
161 Forbes Road, Suite 201
Braintree, MA 02184
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
Carlisle, KY 40311
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
U S EQUITY INVESTMENT PORTFOLIO LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
-34-
<PAGE>
LITIGATION. There is currently no material litigation
affecting the Fund.
-35-
<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.
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.
A-1
<PAGE>
DESCRIPTION OF COMMERCIAL PAPER RATINGS
Commercial paper rated A-1 by Standard & Poor's indicates that
the degree of safety regarding timely payment is either overwhelming or very
strong. Those issues determined to possess overwhelming safety characteristics
are designated A-1+. Capacity for timely payment on commercial paper rated A-2
is strong, but the relative degree of safety is not as high as for issues
designated A-1.
The rating PRIME-1 is the highest commercial paper rating
assigned by Moody's. Issuers rated PRIME-1 (or related supporting institutions)
are considered to have a superior capacity for repayment of short-term
promissory obligations. Issuers rated Prime-2 (or related supporting
institutions) are considered to have strong capacity for repayment of short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated PRIME-1 but to a lesser degree. Earnings trends
and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
11
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
12
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
14
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
-------- ------------
AGENCY OBLIGATIONS--53.8%
FEDERAL FARM CREDIT BANK--8.1%
5.120% 09/04/96(DAGGER) ..................... $ 15,000 $ 14,998,280
5.400% 04/01/97 ............................. 30,000 29,977,099
------------
44,975,379
------------
FEDERAL HOME LOAN BANK--8.1%
5.277% 09/02/96(DAGGER) ..................... 20,000 19,998,784
5.238% 09/20/96(DAGGER) ..................... 15,000 14,999,434
5.560% 10/25/96 ............................. 10,000 9,997,291
------------
44,995,509
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.6%
5.370% 09/03/96(DAGGER) ..................... 10,000 10,000,000
5.410% 09/03/96(DAGGER) ..................... 10,000 9,994,465
5.465% 09/03/96(DAGGER) ..................... 10,000 9,999,787
5.348% 09/06/96(DAGGER) ..................... 20,000 19,992,305
5.337% 09/17/96(DAGGER) ..................... 20,000 19,990,167
5.310% 10/18/96 ............................. 15,000 14,996,237
5.320% 11/21/96(DAGGER) ..................... 25,000 24,992,910
5.270% 11/26/96 ............................. 20,000 19,748,211
5.530% 01/10/97 ............................. 15,000 14,698,154
5.240% 01/15/97 ............................. 15,000 14,703,067
------------
159,115,303
------------
STUDENT LOAN MARKETING ASSOCIATION(DAGGER)--9.0%
5.400% 09/03/96 ............................. 9,000 8,998,786
5.410% 09/03/96 ............................. 5,000 5,000,000
5.420% 09/03/96 ............................. 5,000 4,999,414
5.460% 09/03/96 ............................. 15,000 14,996,128
5.585% 09/03/96 ............................. 3,850 3,851,055
5.610% 09/03/96 ............................. 12,100 12,105,327
------------
49,950,710
------------
TOTAL AGENCY OBLIGATIONS
(Cost $299,036,901) ..................... 299,036,901
------------
PAR
(000) VALUE
------- ------------
U. S. TREASURY OBLIGATIONS--7.2%
U.S. TREASURY NOTES--7.2%
6.875% 02/28/97 ...................... $20,000 $ 20,159,607
6.875% 03/31/97 ...................... 10,000 10,075,608
6.500% 04/30/97 ...................... 10,000 10,050,993
------------
TOTAL U. S. TREASURY
OBLIGATIONS
(Cost $40,286,208) ............... 40,286,208
------------
REPURCHASE AGREEMENTS--38.5%
Aubrey G. Lanston & Co. Inc.
5.200% 09/03/96 ...................... 92,000 92,000,000
(Agreement dated 08/30/96 to be
repurchased at $92,053,156,
collateralized by $44,562,500
U.S. Treasury Bond 6.25% due
08/15/23 and collateralized by
$47,439,700 U.S. Treasury
Notes 7.75% to 8.50% due
12/31/99 to 11/15/00. Market
value of collateral is $92,002,200.)
Donaldson, Lufkin & Jenrette
5.310% 09/03/96 ...................... 102,200 102,200,000
(Agreement dated 08/30/96 to be
repurchased at $102,260,298,
collateralized by $110,810,000
Federal Home Loan Mortgage
Corp. due 08/15/26
Market value of collateral is
$105,270,608.)
Morgan Stanley & Co.
5.270% 09/20/96 ...................... 20,000 20,000,000
(Agreement dated 08/22/96 to be
repurchased at 20,084,906,
collateralized by $25,860,948
Federal Home Loan Mortgage
Corp. 0% to 8.00% due 12/01/09 to
06/15/35. Market value of collateral
is $20,405,022.)
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,200,000) .............. 214,200,000
------------
See Accompanying Notes to Financial Statements.
15
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.5%
(COST $553,523,109*).................. $553,523,109
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5%.................. 3,023,896
------------
NET ASSETS (Applicable to
192,603,016 Bedford shares,
57,191,735 Bradford shares,
306,763,729 Janney Montgomery
Scott shares and 800 other
shares)--100%......................... $556,547,005
============
NET ASSET VALUE, offering and
redemption price per share
($556,547,005 (DIVIDE) 556,559,280)... $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Obligations -- The interest rate is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount shown can be
recovered through demand.
See Accompanying Notes to Financial Statements.
16
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLI0
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Interest .......................................................... $118,092,977 $15,900,230 $30,707,263
------------ ----------- -----------
Expenses
Investment advisory fees .......................................... 7,702,090 1,409,660 2,310,433
Administration fees ............................................... -- 428,209 --
Distribution fees ................................................. 9,304,376 2,427,986 3,236,194
Service organization fees ......................................... 471,499 -- --
Directors' fees ................................................... 38,473 7,715 10,037
Custodian fees .................................................... 345,973 88,191 102,930
Transfer agent fees ............................................... 3,044,149 291,739 610,887
Legal fees ........................................................ 77,139 17,721 20,228
Audit fees ........................................................ 61,049 12,514 16,044
Registration fees ................................................. 434,000 192,999 134,940
Insurance expense ................................................. 43,932 9,056 11,658
Printing fees ..................................................... 426,220 72,100 107,852
Miscellaneous ..................................................... 1,884 387 499
------------ ----------- -----------
21,950,784 4,958,277 6,561,702
Less fees waived .................................................. (3,543,632) (1,236,642) (671,811)
Less expense reimbursement by advisor ............................. (342,158) (17,576) (406,954)
------------ ----------- -----------
Total expenses ............................................... 18,064,994 3,704,059 5,482,937
------------ ----------- -----------
Net investment income ............................................. 100,027,983 12,196,171 25,224,326
------------ ----------- -----------
Realized loss on investments ...................................... (12,987) (674) (10,995)
------------ ----------- -----------
Net increase in net assets resulting from operations .............. $100,014,996 $12,195,497 $25,213,331
============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
---------------------------------- ---------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 100,027,983 $ 64,913,329 $ 12,196,171 $ 9,691,756
Net gain (loss) on investments ............. (12,987) (18,463) (674) 7,009
-------------- -------------- ------------ ------------
Net increase in net assets resulting from
operations ............................... 100,014,996 64,894,866 12,195,497 9,698,765
-------------- -------------- ------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................... (49,874,649) (38,765,552) (5,960,711) (5,717,451)
Bradford Shares .......................... -- -- (3,611,114) (3,266,535)
Cash Preservation shares ................. (10,092) (11,336) (3,746) (5,648)
Janney Montgomery Scott shares ........... (24,434,566) (4,784,092) (2,620,457) (701,975)
RBB shares ............................... (2,630) (2,530) (143) (147)
Sansom Street shares ..................... (25,706,046) (21,349,819) -- --
Dividends to shareholders from net realized
short-term gains:
Bedford shares ........................... -- -- -- --
Bradford shares .......................... -- -- -- --
Janney Montgomery Scott shares ........... -- -- -- --
-------------- -------------- ------------ ------------
Total distributions to shareholders .... (100,027,983) (64,913,329) (12,196,171) (9,691,756)
-------------- -------------- ------------ ------------
Net capital share transactions ............... 374,464,737 736,630,198 (1,864,843) 140,043,103
-------------- -------------- ------------ ------------
Total increase (decrease) in net assets ...... 374,451,750 736,611,735 (1,865,517) 140,050,112
Net Assets:
Beginning of year .......................... 1,821,371,688 1,084,759,953 422,753,863 282,703,751
-------------- -------------- ------------ ------------
End of year ................................ $2,195,823,438 $1,821,371,688 $420,888,346 $422,753,863
============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 25,224,326 $ 12,855,095
Net gain (loss) on investments ............. (10,995) 41,241
------------ ------------
Net increase in net assets resulting from
operations ............................... 25,213,331 12,896,336
------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................... (8,829,111) (7,551,189)
Bradford Shares .......................... (2,208,959) (2,071,772)
Cash Preservation shares ................. -- --
Janney Montgomery Scott shares ........... (14,186,256) (3,232,134)
RBB shares ............................... -- --
Sansom Street shares ..................... -- --
Dividends to shareholders from net realized
short-term gains:
Bedford shares ........................... (12,697) --
Bradford shares .......................... (3,154) --
Janney Montgomery Scott shares ........... (18,204) --
------------ ------------
Total distributions to shareholders .... (25,258,381) (12,855,095)
------------ ------------
Net capital share transactions ............... 44,099,699 306,300,108
------------ ------------
Total increase (decrease) in net assets ...... 44,054,649 306,341,349
Net Assets:
Beginning of year .......................... 512,492,356 206,151,007
------------ ------------
End of year ................................ $556,547,005 $512,492,356
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------- -
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------- -
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ........... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations........................ 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)............................. (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital gains) ... -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions ............... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return............................ 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ........ $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets.......................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets .............. 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) ........... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations........................ 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)............................. (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital gains) ... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............................ 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ........ $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets.......................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets .............. 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................... 0.0458 0.0475 0.0270 0.0231 0.0375
Net gains on securities
(both realized and unrealized)............ -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations......... 0.0458 0.0475 0.0270 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income)...... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from capital gains).......... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions...................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 1.00 $ 1.00 $ 1 .00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return.................................. 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios /Supplemental Data
Net assets, end of year (000)............... $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average net assets. .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income to average
net assets................................ 4.58% 4.75% 2.70% 2.31% 3.75%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses average net assets for
the Government Obligations Money Market Portfolio would have been 1.10%,
1.13%, 1.17%, 1.18% and 1.12% for the years ended August 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, Janney
Montgomery Scott Money Family, the n/i Family and the Bradford Family. The
Bedford Family represents interests in four portfolios, three of which are
covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
will be distributed at least annually. Income distributions and capital
gain distributions are determined in accordance with tax regulations which
may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
21
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly subsidiary of PNC Asset Management Group, Inc.,
which is in turn a wholly owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for the three portfolios described
herein. PNC Bank serves as the sub-advisor for the Money Market, the Municipal
Money Market and the Government Obligations Money Market Portfolios.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on each of the three portfolio's
average daily net assets:
PORTFOLIO ANNUAL RATE
--------------------------- ---------------------------------------------
Money Market and Government .45% of first $250 million of net assets;
Obligations Money Market .40% of next $250 million of net assets
Portfolios .35% of net assets in excess of $500 million.
Municipal Money Market .35% of first $250 million of net assets;
Portfolio .30% of next $250 million of net assets;
.25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
three investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ----------- ----------
<S> <C> <C> <C>
Money Market Portfolio $7,702,090 $(3,527,715) $4,174,375
Municipal Money Market Portfolio 1,409,660 (1,218,973) 190,687
Government Obligations Money Market Portfolio 2,310,433 (671,811) 1,638,622
</TABLE>
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
22
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the three
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- ---------- ---------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total Money Market Portfolio $3,044,149 $(15,917) $3,028,232
========== ======== ==========
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
---------- -------- ----------
Total Municipal Money Market Portfolio $ 291,739 $(17,669) $ 274,070
========== ======== ==========
Government Obligations Money Market Portfolio
Bedford Class $ 81,107 $ -- $ 81,107
Bradford Class 11,935 -- 11,935
Janney Montgomery Scott Class 517,845 -- 517,845
---------- -------- ----------
Total Government Obligations Money Market Portfolio $ 610,887 $ -- $ 610,887
========== ======== ==========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
Portfolio. The administration fee is computed daily and payable monthly at an
annual rate of .10% of the Portfolio's average daily assets. For the year ended
August 31, 1996, the administration fee for the Municipal Money Market Portfolio
was as follows:
ADMINISTRATION
FEE
--------------
Municipal Money Market Portfolio $428,209
The Fund, on behalf of each class of shares within the three investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott and RBB Classes and up to .20% on an
annualized basis for the Sansom Street Class.
23
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31,1996, distribution fees for each class within
the three investment Portfolios were as follows:
DISTRIBUTION
FEE
------------
Money Market Portfolio
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
----------
Total Money Market Portfolio $9,304,376
==========
Municipal Money Market Portfolio
Bedford Class $1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
----------
Total Municipal Money Market Portfolio $2,427,986
==========
Government Obligations Money Market Portfolio
Bedford Class $1,091,847
Bradford Class 275,120
Janney Montgomery Scott Class 1,869,227
----------
Total Government Obligations Money Market Portfolio $3,236,194
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
24
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277 $ 1,022,457,772 $ 1,104,088,188
Bradford Class -- -- 479,401,891 474,166,249
Cash Preservation Class 122,344 84,527 171,907 175,548
Janney Montgomery Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881
RBB Class 584,206 31,504 69,480 5,004
Sansom Street Class 2,191,596,362 1,864,628,110 -- --
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408
Bradford Class -- -- 3,506,714 3,126,860
Cash Preservation Class 10,084 11,226 3,515 5,478
Janney Montgomery Scott Class 24,077,173 4,534,944 2,602,869 662,565
RBB Class 2,625 2,500 143 146
Sansom Street Class 18,389,361 16,689,941 -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142)
Bradford Class -- -- (464,445,579) (466,448,018)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391)
RBB Class (580,821) (23,917) (69,419) (5,072)
Sansom Street Class (2,127,237,313) (1,813,444,951) -- --
------------- ------------- ------------- ---------------
Net increase (decrease) $ 374,464,737 $ 736,630,198 $ (1,864,843) $ 140,043,103
=============== =============== ============= ===============
Bedford Shares authorized 1,500,000,000 1,500,000,000 500,000,000 500,000,000
=============== =============== ============= ===============
</TABLE>
25
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES (CONTINUED)
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $ 663,889,198 $ 461,728,190
Bradford Class 180,761,217 192,414,935
Janney Montgomery Scott Class 1,160,250,876 533,143,649
Shares issued in reinvestment
of dividends:
Bedford Class 8,793,104 7,147,384
Bradford Class 2,158,629 2,029,050
Janney Montgomery Scott Class 14,080,097 3,065,158
Shares repurchased:
Bedford Class (643,470,937) (471,908,601)
Bradford Class (172,234,746) (187,671,346)
Janney Montgomery Scott Class (1,170,127,739) (233,648,311)
--------------- -------------
Net increase $ 44,099,699 $ 306,300,108
=============== =============
Bedford Shares authorized 500,000,000 500,000,000
=============== =============
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------
<S> <C> <C> <C>
Capital paid-in:
Bedford Class $1,109,351,734 $202,009,609 $192,603,016
Bradford Class -- 129,398,582 57,191,735
Cash Preservation Class 202,360 115,765 --
Janney Montgomery Scott Class 561,873,247 89,426,172 306,763,729
RBB Class 61,412 5,143 --
Sansom Street Class 524,367,399 -- --
Other Classes 800 800 800
Accumulated net realized gain (loss)
on investments:
Bedford Class (17,400) (69,803) (4,248)
Bradford Class -- 339 (1,261)
Cash Preservation Class (3) 5 --
Janney Montgomery Scott Class (7,821) 1,734 (6,766)
RBB Class (1) -- --
Sansom Street Class (8,289) -- --
-------------- ------------ ------------
$2,195,823,438 $420,888,346 $556,547,005
============== ============ ============
</TABLE>
26
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $33,513 in the Money Market Portfolio of which of
which $2,062 expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004;
$67,725 in the Municipal Money Market Portfolio of which $55,760 expires in
1999, $444 expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002, $674
expires in 2004; and $12,275 in the Government Obligations Money Market
Portfolio which expires in 2004.
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Money Market Portfolio: Cash Preservation, Janney Montgomery
Scott, RBB and Sansom Street. The Fund currently offers four other classes of
shares representing interests in the Municipal Money Market Portfolio: Bradford,
Cash Preservation, Janney Montgomery Scott and RBB. The Fund currently offers
two other class of shares representing an interest in the Government Obligations
Money Market Portfolio: Bradford and Janney Montgomery Scott. Each class is
marketed to different types of investors. Financial Highlights of the RBB and
Cash Preservation Classes are not presented in this report due to their
immateriality. Such information is available in the annual reports of each
respective family. The financial highlights of certain of the other classes are
as follows:
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities (both realized
and unrealized) ........................ -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations ..... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ... (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions .................. (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ................................ 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) .......... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average net assets . .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income to
average net assets ..................... 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994, and 1993, respectively and 1.15% annualized for the
period end August 31, 1992. (b) Annualized.
</FN>
</TABLE>
27
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31,1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income ..................... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- ------- -------
Total from investment operations ...... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- ------- -------
Less distributions
Dividends (from net investment income) .... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- ------- -------
Total distributions ................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- ------- -------
Net asset value, end of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total Return ................................. 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ........... $129,399 $110,936 $100,089 $76,975 $69,586
Ratios of expenses to average net assets .. .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets ....................... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
28
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- -------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ----------- -------- ---------- -------- ----------
Income from investment
operations:
Net investment income 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
--------- ----------- -------- ---------- -------- ----------
Total from investment
operations 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
--------- ----------- -------- ---------- -------- ----------
Less distributions
Dividends (from net
investment income) (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
--------- ----------- -------- ---------- -------- ----------
Total distributions (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
--------- ----------- -------- ---------- -------- ----------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== =========== ======== ========== ======== ===========
Total Return 4.76% 5.30%(b) 2.81% 2.87%(b) 4.66% 5.03%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) $561,865 $ 443,645 $ 89,428 $ 113,226 $306,757 $ 302,585
Ratios of expenses to
average net assets 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b) 1.00%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets 4.65% 5.04%(b) 2.78% 2.83%(b) 4.56% 4.91%(b)
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.23% for
the year ended August 31, 1996 and 1.23% annualized for the period ended
August 31, 1995. For the Municipal Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.23% for the year ended
August 31, 1996 and 1.30% annualized for the period ended August 31, 1995.
For the Government Obligations Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.25% for the year ended
August 31, 1996 and 1.28% annualized for the period ended August 31, 1995.
(b) Annualized.
</FN>
</TABLE>
29
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ......................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) .............................. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment operations ........... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ........ (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains) ............ -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ........................ (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .................................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year ....................... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets ...... .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to average
net assets ................................... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory and transfer agent 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 .65%,
.59%, .60%, .60% and .61% for the years ended August 31, 1996, 1995, 1994,
1993 and 1992, respectively.
</FN>
</TABLE>
30
<PAGE>
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.
- ---------------------------------------------------
CONTENTS
PAGE
Introduction............................... 2
Financial Highlights....................... 3
Investment Objectives and Policies......... 5
Purchase and Redemption of Shares.......... 8
Management................................. 12
Distribution of Shares..................... 14
Dividends and Distributions................ 14
Taxes...................................... 15
Description of Shares...................... 15
Other Information.......................... 16
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
BEDFORD
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The investment objective of the Government Obligations Money Market
Portfolio is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. The Government
Obligations Money Market Portfolio (the "Portfolio") seeks to achieve such
objective by investing in short-term U.S. Treasury bills and notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The Bedford shares of the Government Obligations Money Market
Portfolio are a class of shares (the "Class") of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company. Shares of the
Class ("Shares") are offered by this Prospectus and represent interests in the
Portfolio.
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 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 advisor for the Fund,
PNC Bank, National Association serves as sub-adviser for the Portfolio and
custodian for the Fund, PFPC Inc. serves as 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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
The RBB Fund, Inc. 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 Government Obligations Money Market Portfolio (the "Government
Obligations Money Market Portfolio" or the "Portfolio").
The investment objective of the Portfolio is to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. To achieve its objective, the Portfolio invests
exclusively in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
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 Portfolio's investment adviser is PNC Institutional Management
Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank") serves as
sub-adviser to the Portfolio and custodian for the Fund, and PFPC Inc. ("PFPC")
serves as transfer and dividend disbursing agent for the Fund. Counsellors
Securities Inc. (the "Distributor") acts as distributor of the Fund's shares.
An investor may purchase and redeem Shares through his broker or by direct
purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Portfolio 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 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."
<TABLE>
<CAPTION>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BEDFORD SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<S> <C>
Management fees (after waivers)(1) .30%
12b-1 fees (after waivers)(1) .57
Other Expenses (after reimbursements) .105
----
Total Fund Operating Expenses (Bedford Shares) (after waivers
and reimbursements) .975%
====
</TABLE>
(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 Government Obligations
Money Market Portfolio, Management fees would be .42%; 12b-1 fees would be
.57%; Other Expenses would be .11% andTotal Fund OperatingExpenses would be
1.10%.
2
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment, assuming
(1) 5% annual return and (2)
redemption at the end of each time period: $10 $31 $54 $120
</TABLE>
* 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
(Bedford 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 Shares 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.) Expense figures are based on actual costs 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 a 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 Class 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 Class refers to the income
generated by an investment in the Class 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 the Class 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 the Class are not reflected in the yield of 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
Portfolio depending on the allocation of expenses to each class of the
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Bedford Class of the Government Obligations Money Market
Portfolio for the periods indicated. The financial data included in this table
for each of the periods ended August 31, 1992 through August 31, 1996 are a part
of the Fund's financial statements 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 such Portfolio for the periods
ended August 31, 1989, 1990 and 1991 are part of previous financial statements
audited by Coopers & Lybrand L.L.P. The financial data included in this table
should be read in conjunction with the financial statements and related notes
included in the Statement of Additional Information.
3
<PAGE>
<TABLE>
<CAPTION>
BEDFORD CLASS OF THE GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
THE RBB FUND INC. FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 0.0458 0.0475 0.0270 0.0231 0.0375 0.0604 0.0748 0.0725
Net gains on securities
both realized
and unrealized -- -- -- -- 0.0009 -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations 0.0458 0.0475 0.0270 0.0231 0.0384 0.0604 0.0748 0.0725
------- ------- ------- ------- ------- ------- ------- -------
Less distributions dividends
Dividends (from net
investment income) (0.0458) (0.0475) (0.0270) (0.0231) (0.0375) (0.0604) (0.0748) (0.0725)
Distributions (from
capital gains) -- -- -- -- (0.0009) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total distributions (0.0458) (0.0475) (0.0270) (0.0231) (0.0384) (0.0604) (0.0748) (0.0725)
------- ------- ------- ------- ------- ------- ------- -------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= ======= =======
Total return 4.68% 4.86% 2.73% 2.33% 3.91% 6.21% 7.74% 8.64%(b)
Ratios supplemental Data
Net assets, end of
period (000) $192,599 $163,398 $166,418 $213,741 $225,101 $368,899 $209,378 $ 66,281
Ratios of expenses to
average net assets .975%(a) .975%(a) .975%(a) .975%(a) .975%(a) .95%(a) .95%(a) .96%(a)(b)
Ratios of net investment
income to average
net assets 4.58% 4.75% 2.70% 2.31% 3.75% 6.04% 7.48% 8.34%(b)
</TABLE>
(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 Government Obligations Money Market Portfolio would have been
1.10%, 1.13%, 1.17%, 1.18%, 1.12%, 1.13% and 1.17% for the years ended
August 31, 1996, 1995, 1994, 1993, 1992, 1991 and 1990, respectively, and
1.40% annualized for the period ended August 31, 1989.
(b) Annualized.
(c) Financial Highlights relate solely to the Bedford Class of shares of the
Government Obligations Money Market Portfolio.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
- -------------------------------------------------------------------------------
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or instrumentalities only when the investment adviser believes
that the credit risk with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns Shares
representing interests in the Portfolio. Certain government securities held by
the Portfolio may have remaining maturities exceeding 397 calendar days if such
securities provide for adjustments in their interest rates not less frequently
than every 397 calendar days and the adjustments are sufficient to cause the
securities to have market values, after adjustment, which approximate their par
values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). 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 that the 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 plus accrued interest. Default by or bankruptcy of the seller
would, however, expose the Portfolio to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, the Portfolio would
sell portfolio securities to financial institutions and agree to repurchase them
at an agreed-upon date and price. The Portfolio would consider entering into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase. 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
5
<PAGE>
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 are considered to be borrowings by the Portfolio under the Investment
Company Act of 1940 (the "1940 Act").
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S Government itself. Interests in
such pools are what this Prospectus calls "mortgage-related securities."
Mortgage-related securities may include asset-backed securities which are
backed by mortgages, installment sales contracts, credit card receivables or
other assets and collateralized mortgage obligations ("CMOs") issued or
guaranteed by U.S. Government agencies and instrumentalities or issued by
private companies. Purchasable mortgage-related securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less.
One such type of mortgage-related security in which the Portfolio may
invest is a Government National Mortgage Association ("GNMA") Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments on FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Portfolio may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but, like a
FNMA security, it is not guaranteed by the full faith and credit of the U.S.
Government. For a further discussion of GNMA, FNMA and FHLMC, see "Mortgage
Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as the Portfolio), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as twenty or thirty years, the borrowers
can, and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. This means that, in times of
declining interest rates, some of the Portfolio's higher yielding securities
might be repaid and thereby converted to cash and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase additional
securities. The Portfolio normally will not distribute principal payments
(whether regular or prepaid) to its shareholders. Interest received by the
Portfolio will, however, be distributed to shareholders in the form of
dividends.
To compare the prepayment risk for various securities, various independent
mortgage-related securities dealers publish average remaining life data using
proprietary models. In making determinations concerning average remaining life
of mortgage-related securities for the Portfolio, the investment adviser will
rely on such data to evaluate the prepayment risk in a particular security
except to the extent such data are deemed unreasonable by the investment
adviser. The investment adviser might deem such data unreasonable if such data
appeared to present a significantly different average remaining expected life
for a security when compared to data relating to the average remaining life of
comparable securities as provided by other independent mortgage-related
securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
col-
6
<PAGE>
lateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when it believes that the price of security may decline, causing
a decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for Federal income tax purposes and for certain
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days 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 Government Obligations 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 the Portfolio's
outstanding shares. 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
Government Obligations Money Market Portfolio will be achieved. The investment
limitations summarized below may not be changed, however, without such a vote of
shareholders. (A more detailed description of the following investment
limitations is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is not
for investment lever-
7
<PAGE>
age, but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under Federal income tax provisions applicable to regulated
investment companies.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Shares are sold without a sales load on a continuous basis by the
Distributor. The Distributor is located at 466 Lexington Avenue, New York, New
York. Investors may purchase Shares through an account maintained by the
investor with his brokerage firm (an "Account") and may also purchase Shares
directly by mail or bank wire. The minimum initial investment is $1,000, and the
minimum subsequent investment is $100. The Fund in its sole discretion may
accept or reject any order for purchases of 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 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 the 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
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
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 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.
8
<PAGE>
A broker may offer investors maintaining Accounts the ability to purchase
Shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have his "free-credit" cash balances in his Account automatically invested in
Shares. The frequency of investments and the minimum investment requirement will
be established by the broker and the Fund. In addition, the broker may require a
minimum amount of cash and/or securities to be deposited in an Account for
participants in its Purchase Program. The description of the particular broker's
Purchase Program should be read for details, and any inquiries concerning an
Account under a Purchase Program should be directed to the broker.
If a broker makes special arrangements under which orders for 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.
DIRECT PURCHASES. An investor may also make direct investments in Shares at
any time through any broker that has entered into a dealer agreement with the
Distributor (a "Dealer"). An investor may make an initial investment by mail by
fully completing and signing an application obtained from a Dealer (an
"Application") and mailing it, together with a check payable to "Bedford
Government Obligations Money Market" c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. An Application will be returned to the investor unless it
contains the name of the Dealer from whom it was obtained. Subsequent purchases
may be made through a Dealer or 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 Dealer wire Federal Funds to the Fund's
custodian, PNC Bank. An investor's bank or Dealer 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) 533-7719 (in
Delaware call collect (302) 791-1196), and provide it with your name, address,
telephone number, Social Security or Tax Identification Number, 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 Dealer to wire the specified amount, together with
your assigned account number, to the custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with 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.
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.
9
<PAGE>
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 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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request, to Bedford Government Obligations
Money Market, c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. 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, each signature must be
guaranteed. 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). You may call the Transfer Agent at (800) 533-7719 to
determine whether the entity that will guarantee the signature is an eligible
guarantor. Guarantees must be signed by an authorized signatory of the bank,
trust company or member firm and "Signature Guaranteed" must appear with the
signature.
Direct 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) 533-7719 (in Delaware call collect (302) 791-1196).
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. Neither PFPC nor the Fund will
be liable for any loss, liability, cost or expense for following the procedures
described 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
10
<PAGE>
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 checkwriting privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker/dealer may establish a higher minimum. An investor
wishing to use this check writing redemption procedure should complete specimen
signature cards, and then forward such signature cards to PFPC. PFPC will then
arrange for the checks to be honored by PNC Bank. Investors who own Shares
through an Account should contact their brokers for signature cards. Investors
with 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 the rules of the 1940 Act, 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 cashed at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
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.
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 weekdays, 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 on
which the NYSE is closed (except Christmas Day (observed)), as well as Martin
Luther King, Jr. Day, Veterans Day and Columbus Day. The 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
11
<PAGE>
the number of its outstanding shares. The net asset value per share of the
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
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BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio of the
Fund 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 Government Obligations Money Market Portfolio is one of such
portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for the Government Obligations Money Market 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 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 the 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 Portfolio's 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 Portfolio, PIMC is entitled to receive the following fees, computed daily
and payable monthly based on the 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 agreement with the Fund relating to the
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by the Portfolio to PIMC.
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<PAGE>
For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .30% of the average net assets of the Government
Obligations Money Market Portfolio. For that same year, PIMC waived
approximately .12% of the advisory fees payable with respect to the Government
Obligations 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 of shares of the
Fund, the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund, 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 the
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 the 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 1.10% of average net assets with respect to the Bedford Class of the
Government Obligations Money Market Portfolio (not taking into account waivers
and reimbursements of .125%).
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<PAGE>
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 pursuant to a distribution
contract (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 such Class
does not exceed the income of such Class on that day. In addition, the
Distributor may, in its discretion, voluntarily waive from time to time all or
any portion of its distribution fee.
Under 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 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, the Plan 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 Government Obligations Money Market
Portfolio to the Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares 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.
14
<PAGE>
TAXES
- -------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its 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. So long as
the Portfolio qualifies for this tax treatment, the 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 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 or whether such gain was reflected in the
price paid for the Shares. 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.
All other distributions, to the extent they are taxable, are taxed to
shareholders as ordinary income.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Ordinarily, shareholders will
include all dividends declared by the Fund in income in the year of payment.
However, 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 and paid by the Fund on
December 31, of such year, if such dividends are paid during January of the
following year. The Fund intends to make sufficient actual or deemed
distributions with respect to the Portfolio 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.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Fund which may
differ from the Federal income tax consequences described above.
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 the Government Obligations
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 compensa-
15
<PAGE>
tion 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 BEDFORD SHARES OF THE GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO SUCH SHARES.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares 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 when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of common stock of the Fund may elect all of
the directors.
As of 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) 533-7719 (in Delaware call collect
(302) 791-1196).
16
<PAGE>
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<PAGE>
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<PAGE>
BEDFORD GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIO OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to a class of Shares (the "Class") of The
RBB Fund, Inc. representing interests in the Government Obligations Money Market
Portfolio (the "Portfolio"). This Statement of Additional Information is not a
prospectus, and should be read only in conjunction with the Bedford Government
Obligations Money Market Portfolio Prospectus of The RBB Fund, Inc. 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 2
Investment Objective and Policies ............. 2 5
Directors and Officers ........................ 7 N/A
Investment Advisory, Distribution and Servicing
Arrangements ............................ 10 12
Portfolio Transactions ........................ 14 N/A
Purchase and Redemption Information ........... 15 8
Valuation of Shares ........................... 16 11
Taxes ......................................... 18 15
Additional Information Concerning Fund Shares.. 21 15
Miscellaneous ................................. 24 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 "Shares") representing
interests in the Government Obligations Money Market Portfolio of the Fund. The
Shares are 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 OBJECTIVE AND POLICIES
The following supplements the information contained in the
Prospectus concerning the investment objective 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.
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.
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
2
<PAGE>
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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
3
<PAGE>
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 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.
The coupon rate of interest on mortgage-related securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, but only by the amount of the fees paid to the mortgage pooler, issuer,
and/or guarantor of payment of the securities for the guarantee of the services
of passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
LENDING OF SECURITIES. With respect to loans by the Portfolio
of its portfolio securities as described in the Prospectus, the Portfolio would
4
<PAGE>
continue to accrue interest on loaned securities and would also earn income on
loans. Any cash collateral received by the Portfolio in connection with such
loans would be invested in short-term U.S. Government obligations. Any loans by
the Government Obligations Money Market Portfolio of its portfolio's securities
will be fully collateralized and marked to market daily.
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. 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 and municipal securities. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities will expand further as a result of this new
regulation and the development of automated systems for the trading,
5
<PAGE>
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 Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations. There is no limit on the
amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is
permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate its assets, except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not
6
<PAGE>
(together with all non-qualifying income) exceed 10% of the Portfolio's annual
gross income (without offset for realized capital gains) unless, in the opinion
of counsel to the Fund, such amounts are qualifying income under Federal income
tax provisions applicable to regulated investment companies.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
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:
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus& Co., Inc.; Since
1990, Chief Executive
Officer and since
1991, Secretary,
Counsellors Securities
Inc.; Officer of various
investment companies
advised by Warburg,
Pincus Counsellors, Inc.
Robert Sablowsky - 58** Director Since OCTOBER 1996, SENIOR
110 Wall Street VICE PRESIDENT OF
New York, NY 10005 FAHNESTOCK & CO., INC.
1985 TO 1996, Executive
Vice President of
Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc.
7
<PAGE>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
Francis J. McKay - 60 Director Since 1963, Executive
7701 Burholme Avenue Vice President, Fox Chase
Philadelphia, PA 19111 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,
Inc.) (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 Chairman,
1969 to 1234 Market Street present, Comcast Corporation;
16th Floor Director, Comcast Cablevision
Philadelphia, PA 19102 of Philadelphia (cable
televisionand
communications)and
Nextel (wireless
communications).
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
Insurance Co.
Edward J. Roach - 72 President Certified Public
Suite 100, and Treasurer Accountant; Vice
Bellevue Park Corporate Center Chairman of the Board,
400 Bellevue Parkway Fox Chase Cancer
Wilmington, DE 19809 Center; Trustee Emeritus,
Pennsylvania School for the
Deaf;Trustee Emeritus,
Immaculata
College; Vice President and
Treasurer of various investment
companies advised by PNC
Institutional Management
Corporation.
8
<PAGE>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
Morgan R. Jones - 57 Secretary Chairman, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Philadelphia,
Broad and Chestnut Streets Pennsylvania; Director,
Philadelphia, PA 19107 Rocking Horse Child Care
Centers of America, Inc.
- ----------
* 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 (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
9
<PAGE>
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 Portfolio's sub-ADVISER and the Fund's
custodian, PFPC Inc. ("PFPC"), the Fund's transfer and dividend disbursing
agent, and Counsellors Securities Inc. (the "Distributor"), the Fund's
distributor, the Fund itself requires only one part-time employee. No officer,
director or employee of PIMC, PNC Bank, PFPC or the Distributor currently
receives any compensation from the Fund.
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 and administrative services to the Portfolio pursuant to an
Investment Advisory and Administration Agreement, dated August 16, 1988, and PNC
Bank renders sub-advisory services to the Portfolio pursuant to a Sub-Advisory
Agreement, 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, PIHC RECEIVED (AFTER
WAIVERS) $1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS
PORTFOLIO. DURING THE SAME YEAR PIMC WAIVED $1,218,973 OF ADVISORY FEES WITH
RESPECT TO THE GOVERNMENT OBLIGATIONS PORTFOLIO. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $780,122 in advisory fees with respect to
the Government OBLIGATIONS Money Market Portfolio. During the same year PIMC
waived $398,363 of advisory fees with respect to the Government Obligations
Money Market Portfolio. For the year ended August 31, 1994, PIMC received (after
waivers) $580,435 in advisory fees with respect to the Government Obligations
Money Market Portfolio. During the same year PIMC waived $461,938 of advisory
fees with respect to the Government Obligations Money Market Portfolio.
As required by various state regulations, PIMC will reimburse
the Fund or the Portfolio (as applicable) if and to the extent that the
aggregate operating expenses of the Fund or the Portfolio 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.
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<PAGE>
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 the 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 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 the 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 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
11
<PAGE>
were each approved 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. Each of the Advisory Contracts may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
assignment thereof.
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 the 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 Shares of the Fund pursuant to a Transfer
Agency Agreement dated August 16, 1988 (the "Transfer Agency Agreement"), under
which PFPC (a) issues and redeems Shares, (b) addresses and mails all
communications by the Portfolio to record owners of Shares, 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 classes of the Fund. 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 via third parties and
relayed electronically to PFPC, and at the 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
12
<PAGE>
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 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 AGREEMENT. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplement (the
"Distribution Contract") entered into by the Distributor and the Fund with
respect to the Shares, and a Plan of Distribution for the Shares (the "Plan"),
both of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute the
Shares. 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 and was most recently approved for
continuation 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") on July 10, 1996. The Plan was approved by shareholders
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 Shares
under the Plan shall not be materially increased without the affirmative vote of
the holders of a majority of the Shares; 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 Bedford
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<PAGE>
Class of the Government Obligation Money Market Portfolio in the aggregate
amount of $1,091,847 of which amount $1,072,131 was paid to dealers with whom
the Distributor had entered into sales agreements and $19,716 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 Bedford Class of the Government Obligations Money
Market Portfolio. The Fund believes that the 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 Plans 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). Because the Portfolio intends to purchase only securities with
remaining maturities of 397 calendar days or less, its portfolio turnover rate
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 the 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 does not 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.
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<PAGE>
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 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
15
<PAGE>
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 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 WEEKENDS AND 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 CHRISTMANS
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
16
<PAGE>
prior to maturity, reducing or withholding dividends, and utilizing a net asset
value per share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements, 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 current and effective yields of
Shares of the Class are computed using standardized methods required by the SEC.
The annualized yield for Shares of the Class is 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 Shares of the Class was 4.42%, and the effective yield for the same
period for the Shares of the Class was 4.52%.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yield of Shares of the Class will
fluctuate, it 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
17
<PAGE>
be given to each fund's investment policies, including the types of investments
made, lengths of maturities of the portfolio securities, the method used by each
fund to compute the yield (methods may differ) and whether there are any special
account charges which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests 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 Investor Service, Inc. ("Moodys") and Standard & Poor's
Corporation ("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 the Portfolio should continue to hold the
obligation.
From time to time, in advertisements or in reports to
shareholders, the yield of Shares of the Class 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 Shares of the Class may be
compared to the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the 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 Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or its 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
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<PAGE>
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income and
net tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
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 (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
19
<PAGE>
or more issuers which the Portfolio controls and which are engaged in the same
or similar trades of 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
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 it to fail to satisfy the Asset
Diversification Requirement.
The Portfolio is not intended to constitute a balanced
investment program nor is it designed for investors seeking capital
appreciation.
Distributions of net investment income received by the
Portfolio from investments in debt securities and any net realized short-term
capital gains distributed by the Portfolio will be taxable to shareholders as
ordinary income and will not be eligible for the dividends received deduction
for corporations.
While the Portfolio does not expect to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities, 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 taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions 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 marginal rate to exceed 31%. The maximum rate on
the net capital gain of individuals, trusts and estates, however, is in all
cases 28%. Capital gains and ordinary income of corporate taxpayers are taxed at
a nominal maximum rate of 34% (an effective marginal rate of 39% applies in the
case of corporations having taxable income between $100,000 and $335,000).
20
<PAGE>
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 one-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, the Portfolio does not
anticipate incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although the Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, the Portfolio may be subject to the tax laws of such states
or localities.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 13.47 billion shares are
21
<PAGE>
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, 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 COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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 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.
22
<PAGE>
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 N 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 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
23
<PAGE>
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
the portfolio only if approved by the holders of a majority of the outstanding
voting securities of the portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
24
<PAGE>
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 and 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. Garvey 12.7
Portfolio 2729 Woodland Avenue
(Class E) Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution 16.9
Account
4943 King Arthur Drive
Erie, PA 16506
JOHN Robert Estrada and 16.5
Shirley Ann Estrad
1700 Raton Drive
Arlington, TX 76018
ERIC Levine and Linda & Howard Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal William B. Pettus Trust 11.4
Money Market Augustine W. Pettus Trust
Portfolio 827 Winding Path Lane
(Class F) St. Louis, MO 63021-6635
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
SEYMOUR Fein 88.6
P.O. Box 486
Tremont Post Office
Bronx, NY 10457-0486
CASH Preservation Jewish Family and Children's 56.8
Money Market Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee 12.3
for in Trustunder The
Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Kenneth Farwell and Valerie 11.1
Municipal MoneyPortfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR 15.3
DTD 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
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<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 Wasner & Co. FAO Paine Webber and 16.6
Money Market Portfolio Managed Assets Sundry Holdings
(Class I) 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 (CLASS R) 330 COMMERCE STREET
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 5.1
EQUITY OF 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 5.0
NEW YORK, NY 10022
BEA HIGH YIELD TEMPLE Inland Master Retirement Trust 10.2
Portfolio 303 South Temple Drive
(Class U) Diboll, TX 75941
27
<PAGE>
r
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
GUENTER FULL TRST MICHELIN 16.7
NORTH AMERICA INC.
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER
RETIREMENT TRUST
2383 MICHELSON DRIVE 9.4
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. 13.3
RETIREMENT PLAN
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Wachovia Bank North Carolina 15.7
Markets 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
28
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Bank of New York 45.3
Equity 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
29
<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 Sunkist Master Trust 36.0
Income 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 William A. Marquard 37.4
Bond Fund 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 5.7
SLOVES
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
30
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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 18.7
PORTFOLIO 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 CHARLES SCHWAB & CO. INC. 24.4
VALUE FUND SPECIAL CUSTODY ACCOUNT FOR
(CLASS HH) THE EXCLUSIVE BENEFIT OF
CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Janney Montgomery Scott 100
Scott Money Market 1801 Market Street
Portfolio Philadelphia, PA 19103-1675
(Class JANNEY MONEY
MARKET)
JANNEY Montgomery Scott JANNEY Montgomery Scott 100
Municipal Money Market 1801 Market Street
Portfolio Philadelphia, PA 19103-1675
(Class JANNEY MUNICIPAL
MONEY MARKET)
31
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
Janney Montgomery Scott JANNEY Montgomery Scott 100
Government Obligations 1801 Market Street
Scott Money Market Portfolio Philadelphia, PA 19103-1675
(Class JANNEY GOVERNMENT
OBLIGATIONS MONEY)
Janney Montgomery Scott JANNEY Montgomery Scott 100
New York Municipal Money 1801 Market Street
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.
32
<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.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
A-1
<PAGE>
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
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
11
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
12
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
14
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
-------- ------------
AGENCY OBLIGATIONS--53.8%
FEDERAL FARM CREDIT BANK--8.1%
5.120% 09/04/96(DAGGER) ..................... $ 15,000 $ 14,998,280
5.400% 04/01/97 ............................. 30,000 29,977,099
------------
44,975,379
------------
FEDERAL HOME LOAN BANK--8.1%
5.277% 09/02/96(DAGGER) ..................... 20,000 19,998,784
5.238% 09/20/96(DAGGER) ..................... 15,000 14,999,434
5.560% 10/25/96 ............................. 10,000 9,997,291
------------
44,995,509
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.6%
5.370% 09/03/96(DAGGER) ..................... 10,000 10,000,000
5.410% 09/03/96(DAGGER) ..................... 10,000 9,994,465
5.465% 09/03/96(DAGGER) ..................... 10,000 9,999,787
5.348% 09/06/96(DAGGER) ..................... 20,000 19,992,305
5.337% 09/17/96(DAGGER) ..................... 20,000 19,990,167
5.310% 10/18/96 ............................. 15,000 14,996,237
5.320% 11/21/96(DAGGER) ..................... 25,000 24,992,910
5.270% 11/26/96 ............................. 20,000 19,748,211
5.530% 01/10/97 ............................. 15,000 14,698,154
5.240% 01/15/97 ............................. 15,000 14,703,067
------------
159,115,303
------------
STUDENT LOAN MARKETING ASSOCIATION(DAGGER)--9.0%
5.400% 09/03/96 ............................. 9,000 8,998,786
5.410% 09/03/96 ............................. 5,000 5,000,000
5.420% 09/03/96 ............................. 5,000 4,999,414
5.460% 09/03/96 ............................. 15,000 14,996,128
5.585% 09/03/96 ............................. 3,850 3,851,055
5.610% 09/03/96 ............................. 12,100 12,105,327
------------
49,950,710
------------
TOTAL AGENCY OBLIGATIONS
(Cost $299,036,901) ..................... 299,036,901
------------
PAR
(000) VALUE
------- ------------
U. S. TREASURY OBLIGATIONS--7.2%
U.S. TREASURY NOTES--7.2%
6.875% 02/28/97 ...................... $20,000 $ 20,159,607
6.875% 03/31/97 ...................... 10,000 10,075,608
6.500% 04/30/97 ...................... 10,000 10,050,993
------------
TOTAL U. S. TREASURY
OBLIGATIONS
(Cost $40,286,208) ............... 40,286,208
------------
REPURCHASE AGREEMENTS--38.5%
Aubrey G. Lanston & Co. Inc.
5.200% 09/03/96 ...................... 92,000 92,000,000
(Agreement dated 08/30/96 to be
repurchased at $92,053,156,
collateralized by $44,562,500
U.S. Treasury Bond 6.25% due
08/15/23 and collateralized by
$47,439,700 U.S. Treasury
Notes 7.75% to 8.50% due
12/31/99 to 11/15/00. Market
value of collateral is $92,002,200.)
Donaldson, Lufkin & Jenrette
5.310% 09/03/96 ...................... 102,200 102,200,000
(Agreement dated 08/30/96 to be
repurchased at $102,260,298,
collateralized by $110,810,000
Federal Home Loan Mortgage
Corp. due 08/15/26
Market value of collateral is
$105,270,608.)
Morgan Stanley & Co.
5.270% 09/20/96 ...................... 20,000 20,000,000
(Agreement dated 08/22/96 to be
repurchased at 20,084,906,
collateralized by $25,860,948
Federal Home Loan Mortgage
Corp. 0% to 8.00% due 12/01/09 to
06/15/35. Market value of collateral
is $20,405,022.)
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,200,000) .............. 214,200,000
------------
See Accompanying Notes to Financial Statements.
15
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.5%
(COST $553,523,109*).................. $553,523,109
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5%.................. 3,023,896
------------
NET ASSETS (Applicable to
192,603,016 Bedford shares,
57,191,735 Bradford shares,
306,763,729 Janney Montgomery
Scott shares and 800 other
shares)--100%......................... $556,547,005
============
NET ASSET VALUE, offering and
redemption price per share
($556,547,005 (DIVIDE) 556,559,280)... $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Obligations -- The interest rate is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount shown can be
recovered through demand.
See Accompanying Notes to Financial Statements.
16
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLI0
------------ ------------ ------------
<S> <C> <C> <C>
Investment Income
Interest .......................................................... $118,092,977 $15,900,230 $30,707,263
------------ ----------- -----------
Expenses
Investment advisory fees .......................................... 7,702,090 1,409,660 2,310,433
Administration fees ............................................... -- 428,209 --
Distribution fees ................................................. 9,304,376 2,427,986 3,236,194
Service organization fees ......................................... 471,499 -- --
Directors' fees ................................................... 38,473 7,715 10,037
Custodian fees .................................................... 345,973 88,191 102,930
Transfer agent fees ............................................... 3,044,149 291,739 610,887
Legal fees ........................................................ 77,139 17,721 20,228
Audit fees ........................................................ 61,049 12,514 16,044
Registration fees ................................................. 434,000 192,999 134,940
Insurance expense ................................................. 43,932 9,056 11,658
Printing fees ..................................................... 426,220 72,100 107,852
Miscellaneous ..................................................... 1,884 387 499
------------ ----------- -----------
21,950,784 4,958,277 6,561,702
Less fees waived .................................................. (3,543,632) (1,236,642) (671,811)
Less expense reimbursement by advisor ............................. (342,158) (17,576) (406,954)
------------ ----------- -----------
Total expenses ............................................... 18,064,994 3,704,059 5,482,937
------------ ----------- -----------
Net investment income ............................................. 100,027,983 12,196,171 25,224,326
------------ ----------- -----------
Realized loss on investments ...................................... (12,987) (674) (10,995)
------------ ----------- -----------
Net increase in net assets resulting from operations .............. $100,014,996 $12,195,497 $25,213,331
============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
17
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
---------------------------------- ---------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 100,027,983 $ 64,913,329 $ 12,196,171 $ 9,691,756
Net gain (loss) on investments ............. (12,987) (18,463) (674) 7,009
-------------- -------------- ------------ ------------
Net increase in net assets resulting from
operations ............................... 100,014,996 64,894,866 12,195,497 9,698,765
-------------- -------------- ------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................... (49,874,649) (38,765,552) (5,960,711) (5,717,451)
Bradford Shares .......................... -- -- (3,611,114) (3,266,535)
Cash Preservation shares ................. (10,092) (11,336) (3,746) (5,648)
Janney Montgomery Scott shares ........... (24,434,566) (4,784,092) (2,620,457) (701,975)
RBB shares ............................... (2,630) (2,530) (143) (147)
Sansom Street shares ..................... (25,706,046) (21,349,819) -- --
Dividends to shareholders from net realized
short-term gains:
Bedford shares ........................... -- -- -- --
Bradford shares .......................... -- -- -- --
Janney Montgomery Scott shares ........... -- -- -- --
-------------- -------------- ------------ ------------
Total distributions to shareholders .... (100,027,983) (64,913,329) (12,196,171) (9,691,756)
-------------- -------------- ------------ ------------
Net capital share transactions ............... 374,464,737 736,630,198 (1,864,843) 140,043,103
-------------- -------------- ------------ ------------
Total increase (decrease) in net assets ...... 374,451,750 736,611,735 (1,865,517) 140,050,112
Net Assets:
Beginning of year .......................... 1,821,371,688 1,084,759,953 422,753,863 282,703,751
-------------- -------------- ------------ ------------
End of year ................................ $2,195,823,438 $1,821,371,688 $420,888,346 $422,753,863
============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 25,224,326 $ 12,855,095
Net gain (loss) on investments ............. (10,995) 41,241
------------ ------------
Net increase in net assets resulting from
operations ............................... 25,213,331 12,896,336
------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares ........................... (8,829,111) (7,551,189)
Bradford Shares .......................... (2,208,959) (2,071,772)
Cash Preservation shares ................. -- --
Janney Montgomery Scott shares ........... (14,186,256) (3,232,134)
RBB shares ............................... -- --
Sansom Street shares ..................... -- --
Dividends to shareholders from net realized
short-term gains:
Bedford shares ........................... (12,697) --
Bradford shares .......................... (3,154) --
Janney Montgomery Scott shares ........... (18,204) --
------------ ------------
Total distributions to shareholders .... (25,258,381) (12,855,095)
------------ ------------
Net capital share transactions ............... 44,099,699 306,300,108
------------ ------------
Total increase (decrease) in net assets ...... 44,054,649 306,341,349
Net Assets:
Beginning of year .......................... 512,492,356 206,151,007
------------ ------------
End of year ................................ $556,547,005 $512,492,356
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
18
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------- -
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- --------------- -
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) ........... -- -- -- -- 0.0007
---------- -------- -------- -------- --------
Total from investment
operations........................ 0.0469 0.0486 0.0278 0.0243 0.0382
---------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)............................. (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital gains) ... -- -- -- -- (0.0007)
---------- -------- -------- -------- --------
Total distributions ............... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- -------- -------- -------- --------
Net asset value, end of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ======== ======== ======== ========
Total Return............................ 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ........ $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets.......................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets .............. 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income................. 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) ........... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations........................ 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income)............................. (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital gains) ... -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return............................ 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ........ $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets.......................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets .............. 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
19
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income....................... 0.0458 0.0475 0.0270 0.0231 0.0375
Net gains on securities
(both realized and unrealized)............ -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations......... 0.0458 0.0475 0.0270 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income)...... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from capital gains).......... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions...................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value, end of year.................. $ 1.00 $ 1.00 $ 1 .00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return.................................. 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios /Supplemental Data
Net assets, end of year (000)............... $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average net assets. .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income to average
net assets................................ 4.58% 4.75% 2.70% 2.31% 3.75%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses average net assets for
the Government Obligations Money Market Portfolio would have been 1.10%,
1.13%, 1.17%, 1.18% and 1.12% for the years ended August 31, 1996, 1995,
1994, 1993 and 1992, respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
20
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, Janney
Montgomery Scott Money Family, the n/i Family and the Bradford Family. The
Bedford Family represents interests in four portfolios, three of which are
covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
will be distributed at least annually. Income distributions and capital
gain distributions are determined in accordance with tax regulations which
may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
21
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly subsidiary of PNC Asset Management Group, Inc.,
which is in turn a wholly owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for the three portfolios described
herein. PNC Bank serves as the sub-advisor for the Money Market, the Municipal
Money Market and the Government Obligations Money Market Portfolios.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on each of the three portfolio's
average daily net assets:
PORTFOLIO ANNUAL RATE
--------------------------- ---------------------------------------------
Money Market and Government .45% of first $250 million of net assets;
Obligations Money Market .40% of next $250 million of net assets
Portfolios .35% of net assets in excess of $500 million.
Municipal Money Market .35% of first $250 million of net assets;
Portfolio .30% of next $250 million of net assets;
.25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
three investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ----------- ----------
<S> <C> <C> <C>
Money Market Portfolio $7,702,090 $(3,527,715) $4,174,375
Municipal Money Market Portfolio 1,409,660 (1,218,973) 190,687
Government Obligations Money Market Portfolio 2,310,433 (671,811) 1,638,622
</TABLE>
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
22
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the three
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- ---------- ---------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total Money Market Portfolio $3,044,149 $(15,917) $3,028,232
========== ======== ==========
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
---------- -------- ----------
Total Municipal Money Market Portfolio $ 291,739 $(17,669) $ 274,070
========== ======== ==========
Government Obligations Money Market Portfolio
Bedford Class $ 81,107 $ -- $ 81,107
Bradford Class 11,935 -- 11,935
Janney Montgomery Scott Class 517,845 -- 517,845
---------- -------- ----------
Total Government Obligations Money Market Portfolio $ 610,887 $ -- $ 610,887
========== ======== ==========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
Portfolio. The administration fee is computed daily and payable monthly at an
annual rate of .10% of the Portfolio's average daily assets. For the year ended
August 31, 1996, the administration fee for the Municipal Money Market Portfolio
was as follows:
ADMINISTRATION
FEE
--------------
Municipal Money Market Portfolio $428,209
The Fund, on behalf of each class of shares within the three investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott and RBB Classes and up to .20% on an
annualized basis for the Sansom Street Class.
23
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31,1996, distribution fees for each class within
the three investment Portfolios were as follows:
DISTRIBUTION
FEE
------------
Money Market Portfolio
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
----------
Total Money Market Portfolio $9,304,376
==========
Municipal Money Market Portfolio
Bedford Class $1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
----------
Total Municipal Money Market Portfolio $2,427,986
==========
Government Obligations Money Market Portfolio
Bedford Class $1,091,847
Bradford Class 275,120
Janney Montgomery Scott Class 1,869,227
----------
Total Government Obligations Money Market Portfolio $3,236,194
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
24
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO MUNICIPAL MONEY MARKET PORTFOLIO
----------------------------------- ----------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277 $ 1,022,457,772 $ 1,104,088,188
Bradford Class -- -- 479,401,891 474,166,249
Cash Preservation Class 122,344 84,527 171,907 175,548
Janney Montgomery Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881
RBB Class 584,206 31,504 69,480 5,004
Sansom Street Class 2,191,596,362 1,864,628,110 -- --
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408
Bradford Class -- -- 3,506,714 3,126,860
Cash Preservation Class 10,084 11,226 3,515 5,478
Janney Montgomery Scott Class 24,077,173 4,534,944 2,602,869 662,565
RBB Class 2,625 2,500 143 146
Sansom Street Class 18,389,361 16,689,941 -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142)
Bradford Class -- -- (464,445,579) (466,448,018)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391)
RBB Class (580,821) (23,917) (69,419) (5,072)
Sansom Street Class (2,127,237,313) (1,813,444,951) -- --
------------- ------------- ------------- ---------------
Net increase (decrease) $ 374,464,737 $ 736,630,198 $ (1,864,843) $ 140,043,103
=============== =============== ============= ===============
Bedford Shares authorized 1,500,000,000 1,500,000,000 500,000,000 500,000,000
=============== =============== ============= ===============
</TABLE>
25
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES (CONTINUED)
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $ 663,889,198 $ 461,728,190
Bradford Class 180,761,217 192,414,935
Janney Montgomery Scott Class 1,160,250,876 533,143,649
Shares issued in reinvestment
of dividends:
Bedford Class 8,793,104 7,147,384
Bradford Class 2,158,629 2,029,050
Janney Montgomery Scott Class 14,080,097 3,065,158
Shares repurchased:
Bedford Class (643,470,937) (471,908,601)
Bradford Class (172,234,746) (187,671,346)
Janney Montgomery Scott Class (1,170,127,739) (233,648,311)
--------------- -------------
Net increase $ 44,099,699 $ 306,300,108
=============== =============
Bedford Shares authorized 500,000,000 500,000,000
=============== =============
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GOVERNMENT
MUNICIPAL OBLIGATIONS
MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ------------ ------------
<S> <C> <C> <C>
Capital paid-in:
Bedford Class $1,109,351,734 $202,009,609 $192,603,016
Bradford Class -- 129,398,582 57,191,735
Cash Preservation Class 202,360 115,765 --
Janney Montgomery Scott Class 561,873,247 89,426,172 306,763,729
RBB Class 61,412 5,143 --
Sansom Street Class 524,367,399 -- --
Other Classes 800 800 800
Accumulated net realized gain (loss)
on investments:
Bedford Class (17,400) (69,803) (4,248)
Bradford Class -- 339 (1,261)
Cash Preservation Class (3) 5 --
Janney Montgomery Scott Class (7,821) 1,734 (6,766)
RBB Class (1) -- --
Sansom Street Class (8,289) -- --
-------------- ------------ ------------
$2,195,823,438 $420,888,346 $556,547,005
============== ============ ============
</TABLE>
26
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $33,513 in the Money Market Portfolio of which of
which $2,062 expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004;
$67,725 in the Municipal Money Market Portfolio of which $55,760 expires in
1999, $444 expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002, $674
expires in 2004; and $12,275 in the Government Obligations Money Market
Portfolio which expires in 2004.
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Money Market Portfolio: Cash Preservation, Janney Montgomery
Scott, RBB and Sansom Street. The Fund currently offers four other classes of
shares representing interests in the Municipal Money Market Portfolio: Bradford,
Cash Preservation, Janney Montgomery Scott and RBB. The Fund currently offers
two other class of shares representing an interest in the Government Obligations
Money Market Portfolio: Bradford and Janney Montgomery Scott. Each class is
marketed to different types of investors. Financial Highlights of the RBB and
Cash Preservation Classes are not presented in this report due to their
immateriality. Such information is available in the annual reports of each
respective family. The financial highlights of certain of the other classes are
as follows:
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities (both realized
and unrealized) ........................ -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations ..... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ... (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions .................. (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ................................ 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) .......... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average net assets . .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income to
average net assets ..................... 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994, and 1993, respectively and 1.15% annualized for the
period end August 31, 1992. (b) Annualized.
</FN>
</TABLE>
27
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31,1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ------- -------
Income from investment operations:
Net investment income ..................... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- ------- -------
Total from investment operations ...... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- ------- -------
Less distributions
Dividends (from net investment income) .... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- ------- -------
Total distributions ................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- ------- -------
Net asset value, end of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======= =======
Total Return ................................. 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ........... $129,399 $110,936 $100,089 $76,975 $69,586
Ratios of expenses to average net assets .. .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets ....................... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
28
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- -------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ----------- -------- ---------- -------- ----------
Income from investment
operations:
Net investment income 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
--------- ----------- -------- ---------- -------- ----------
Total from investment
operations 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
--------- ----------- -------- ---------- -------- ----------
Less distributions
Dividends (from net
investment income) (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
--------- ----------- -------- ---------- -------- ----------
Total distributions (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
--------- ----------- -------- ---------- -------- ----------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== =========== ======== ========== ======== ===========
Total Return 4.76% 5.30%(b) 2.81% 2.87%(b) 4.66% 5.03%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) $561,865 $ 443,645 $ 89,428 $ 113,226 $306,757 $ 302,585
Ratios of expenses to
average net assets 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b) 1.00%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets 4.65% 5.04%(b) 2.78% 2.83%(b) 4.56% 4.91%(b)
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.23% for
the year ended August 31, 1996 and 1.23% annualized for the period ended
August 31, 1995. For the Municipal Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.23% for the year ended
August 31, 1996 and 1.30% annualized for the period ended August 31, 1995.
For the Government Obligations Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.25% for the year ended
August 31, 1996 and 1.28% annualized for the period ended August 31, 1995.
(b) Annualized.
</FN>
</TABLE>
29
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ......................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) .............................. -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment operations ........... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ........ (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains) ............ -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ........................ (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .................................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year ....................... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets ...... .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to average
net assets ................................... 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory and transfer agent 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 .65%,
.59%, .60%, .60% and .61% for the years ended August 31, 1996, 1995, 1994,
1993 and 1992, respectively.
</FN>
</TABLE>
30
<PAGE>
The
Bear Stearns
Funds
235 Park Avenue
New York, New York 10167
1-800-766-4111
- ------------
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.
BSF-P-004-01
<PAGE>
THE BEAR STEARNS FUNDS
245 PARK AVENUE, NEW YORK, NY 10167 1-800-766-411
PROSPECTUS
Money Market Portfolio
of
The RBB Fund, Inc.
THE BEDFORD SHARES OF THE 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").
(ARROW) 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.
(ARROW) 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.
----------------------------------
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
<PAGE>
Table of Contents
PAGE
Introduction ...................................................... 3
Fee Table ......................................................... 4
Financial Highlights .............................................. 6
Investment Objectives and Policies ................................ 7
Purchase, Redemption and Exchange of Shares ....................... 10
Exchange of Shares ................................................ 14
Net Asset Value ................................................... 16
Management ........................................................ 16
Distribution of Shares ............................................ 18
Dividends and Distributions ....................................... 18
Taxes ............................................................. 19
Description of Shares ............................................. 19
Other Information ................................................. 20
2
<PAGE>
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."
3
<PAGE>
Fee Table
ANNUAL FUND OPERATING EXPENSES (SHARES)
After Expense Reimbursements and Waivers(2)
- --------------------------------------------------------------------------------
MONEY MARKET
PORTFOLIO
- --------------------------------------------------------------------------------
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%
===
- -------------
(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 TotalFundOperating Expenses would be 1.14%.
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:
- --------------------------------------------------------------------------------
MONEY MARKET
PORTFOLIO
- --------------------------------------------------------------------------------
1 YEAR ........................................................ $ 10
3 YEARS ....................................................... 4 31
5 YEARS ....................................................... $ 54
10 YEARS ...................................................... $119
- --------------------------------------------------------------------------------
* 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.
4
<PAGE>
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."
5
<PAGE>
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 statements 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 previous financial statements audited by Coopers & Lybrand
L.L.P. The financial data included in this table should be read in conjunction
with the financial statements and related notes included in the Statement of
Additional Information.
FINANCIAL HIGHLIGHTS (c)
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
SEPTEMBER 30, 1988
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1995 1994 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
<FN>
- -------------
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 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.
</FN>
</TABLE>
6
<PAGE>
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 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
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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."
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
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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 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.
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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 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 "Bear
Stearns Funds") either sponsored by or advised by Bear, Stearns & Co. Inc.
("Bear Stearns"), 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
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initial investment is $1,000, and the minimum subsequent investment is $250. 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
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 Bears Stearns or
brokers who have clearing arrangements with Bear Stearns) 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--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 --Money
Market Portfolio (Bedford Class), P.O. Box 8960, Wilmington, Delaware 19899. 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 Bear Stearns Funds may purchase Bedford Shares of the
Portfolio in exchange for his shares of The Bear Stearns 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 Bear Stearns, the Fund's Distributor will pay Bear Stearns 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, together with a check payable to
"The RBB Fund--Money Market Portfolio (Bedford Class)," c/o
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PFPC, P.O. Box 8960, Wilmington, Delaware 19899. The check must specify the name
of The RBB Fund--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) 447-1139
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.
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 -- Money Market Portfolio (Bedford Class), c/o PFPC, P.O. Box 8960,
Wilmington, Delaware 19899. 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
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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) 447-1139. 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.
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.
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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 $7.50 will be charged for payments by wire.
Questions about this option, or redemption requirements generally, should be
referred to the shareholder's Bear Stearns 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 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 Bear Stearns, 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 $25) on either a monthly or quarterly basis if the
investor has a $5,000 minimum account. An application for automatic withdrawal
can be obtained from Bear Stearns, 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 Bear
Stearns, 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 Bear Stearns, their investment dealers who have sales
agreements with Bear Stearns, the Distributor, the
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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:
(ARROW) Emerging Markets Debt Portfolio
(ARROW) S&P STARS Portfolio
(ARROW) Large Cap Value Portfolio
(ARROW) Small Cap Value Portfolio
(ARROW) Total Return Bond Portfolio
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 -- Money Market Portfolio (Bedford Class), P.O. Box 8960, Wilmington,
Delaware 19899. 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)
447-1139 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
Bear Stearns 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 Bear Stearns. 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 Bear Stearns,
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.
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.
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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 Bear Stearns 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). TheFRB is currently closed on weekends and the same holidays as the
NYSE is closed (except Christmas Day (observed)) as well as MartinLuther
King,Jr. Day, Veterans Day andColumbus 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 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.
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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 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.
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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 contract (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 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
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<PAGE>
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 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 the 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.
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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.
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) 447-1139.
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BEAR STEARNS 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
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equal to the longer of the period remaining until its next interest rate
adjustment or the period remaining until the principal amount can be recovered
through demand. In determining whether an unrated variable rate demand
instrument is an eligible security, the Portfolio's investment adviser will
follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the 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
3
<PAGE>
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 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.
4
<PAGE>
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 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.
5
<PAGE>
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
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
6
<PAGE>
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 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
7
<PAGE>
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 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
8
<PAGE>
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 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.
9
<PAGE>
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;
(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
10
<PAGE>
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
11
<PAGE>
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total assets
to be invested in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares 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
12
<PAGE>
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 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 Since 1986,Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.;
Since 1990, Chief
Executive Officer and
since 1991, Secretary,
Counsellors Securities
Inc.; Officer of various
investment companies
advised by Warburg,
Pincus Counsellors, Inc.
Robert Sablowsky, 58** Director Since OCTOBER 1996,
110 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.
13
<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.
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, Chairman 1969 to Present
16th Fl. Comcast Corporation;
Philadelphia, PA 19107-3723 Director,Comcast
Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (Wireless
Communication).
14
<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 Center;
400 Bellevue Parkway 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.
15
<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
16
<PAGE>
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-ADVISER and the Fund's
custodian, PFPC Inc. ("PFPC"), and the Fund's transfer and dividend disbursing
agent, and Counsellors Securities Inc. (the "Distributor"), the Fund's
distributor, the Fund itself requires only one part-time employee. No officer,
director or employee of PIMC, PNC Bank, PFPC or the Distributor currently
receives any compensation from the Fund.
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
17
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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 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
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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.
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,
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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
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
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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 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
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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 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
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<PAGE>
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 recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
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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 WEEKENDS AND New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day
(observed), Labor Day, Thanksgiving Day and Christmas Day (observed). CURRENTLY,
FRB IS 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
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for a stated period of time. However, yield information may be useful to an
investor considering temporary investments in money market instruments. In
comparing the yield of one money market fund to another, consideration should be
given to each fund's investment policies, including the types of investments
made, lengths of maturities of a portfolio securities, the method used by each
fund to compute the yield (methods may differ) and whether there are any special
account charges which may reduce the effective yield.
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.
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The Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, the Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the 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.
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Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of the Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which the Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of the Portfolio's total assets may be invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Portfolio controls and which are engaged in the same or similar trades
or businesses (the "Asset Diversification Requirement").
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.
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The Money Market Portfolio may acquire standby commitments
with respect to Municipal Obligations held in its portfolio and will treat any
interest received on Municipal Obligations subject to such standby commitments
as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the Internal Revenue
Service held that a mutual fund acquired ownership of municipal obligations for
Federal income tax purposes, even though the fund simultaneously purchased "put"
agreements with respect to the same municipal obligations from the seller of the
obligations. The Fund will not engage in transactions involving the use of
standby commitments that differ materially from the transaction described in
Rev. Rul. 82-144 without first obtaining a private letter ruling from the
Internal Revenue Service or the opinion of counsel.
Distributions of net investment income received by the
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by the Portfolio will be
taxable to shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations.
While the Portfolio expect to realize long-term capital gains,
any net realized long-term capital gains, such as gains from the sale of debt
securities and realized market discount on tax-exempt Municipal Obligations,
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
29
<PAGE>
maximum rate on the net capital gain of individuals, trusts and estates,
however, is in all cases 28%. Capital gains and ordinary income of corporate
taxpayers are taxed a nominal maximum rate of 34% (an effective marginal rate of
39% applies in the case of corporations having taxable income between $100,000
and $335,000).
If for any taxable year the Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on municipal obligations) to the extent
of the Portfolio's current and accumulated earning and profits. Such
distributions will be eligible for the dividends received deduction in the case
of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because the Portfolio intends to
distribute all of its taxable income currently, it does not anticipate incurring
any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
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
30
<PAGE>
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.
31
<PAGE>
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, 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 COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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
32
<PAGE>
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 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.
33
<PAGE>
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 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-MONEY 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
34
<PAGE>
policy would be effectively acted upon with respect to a portfolio only if
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent public accountants, the approval of principal
underwriting contracts and the election of directors are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, serves as counsel to the Fund's independent
directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants. The Fund's financial statements which appear in this Statement of
Additional Information have been audited by Coopers & Lybrand L.L.P., as set
forth in their report, which also appears in this Statement of Additional
Information, and have been included herein in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
CONTROL PERSONS. As of 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.
35
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
RBB Money Market Luanne M. Garvey and 12.7
Portfolio Robert J. 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 & 29.6
Howard Levine
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money
Market Portfolio William B. Pettus Trust
(Class F) Augustine W. Pettus Trust
827 Winding Path Lane 11.4
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 Trust 12.3
under The Lynda R. Campbell
Caring Trust
935 Rutger Street
St. Louis, MO 63104
36
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
THERESA M. PALMER 6.8
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 6.1
DORIS DIEDERIC
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING 15.3
TR DTD 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
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
(Class I) Managed Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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 5.1
EQUITY OF MASSACHUSETTS INC.
(CLASS T) Retirement INCOME Trust
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO 5.0
HOLD INC. MT
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD PORTFOLIO TEMPLE INLAND MASTER 10.2
(CLASS U) RETIREMENT TRUST
303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST 16.7
MICHELIN NORTH 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
38
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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. 13.3
RETIREMENT PLAN
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Markets Wachovia Bank North Power15.7
Equity Portfolio Carolina Trust for Carolina
(Class V) Light 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
AMHERST H. Wilder Foundation
919 Lafond Avenue
St. Paul, MN 55104 5.9
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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 New England UFCW & Employers' 24.5
Fixed 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
40
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BANK OF NEW YORK 9.6
TRST FENWAY PARTNERS MASTER TRUST
ONE WALL STREET, 12TH FLOOR
NEW YORK, NY 10286
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 Sunkist Master Trust 36.0
Income 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 William A. Marquard 37.4
Fund Portfolio 2199 Maysville Rd.
(Class AA) Carlisle, KY 40311
ARNOLD Leon
c/o Fiduciary Trust Company
P.O. Box 3199
Church Street Station 12.5
New York, NY 10008
IRWIN Bard 6.2
1750 North East 183rd St. North
Miami Beach, FL 33160
41
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
MATTHEW M. SLOVES AND 5.7
DIANE DECKER SLOVES
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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 LP 18.7
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
42
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
N/I GROWTH AND VALUE CHARLES SCHWAB & CO. INC. 24.4
FUND (CLASS HH) SPECIAL CUSTODY ACCOUNT
FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery JANNEY Montgomery Scott 100
Scott Money Market 1801 Market Street
Portfolio Philadelphia, PA 19103-1675
(Class JANNEY
MONEY MARKET)
Janney Montgomery JANNEY Montgomery Scott 100
Scott Municipal 1801 Market Street
Money Market Portfolio Philadelphia, PA 19103-1675
(Class JANNEY
MUNICIPAL MONEY
MARKET)
Janney Montgomery JANNEY Montgomery Scott 100
Scott Government 1801 Market Street
Obligations Money Philadelphia, PA 19103-1675
Market Portfoli Scott
(Class JANNEY
GOVERNMENT
OBLIGATIONS MONEY)
Janney Montgomery JANNEY Montgomery Scott 100
Scott New York 1801 Market Street
Municipal Money Market Philadelphia, PA 19103-1675
Portfolio
(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.
43
<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.
A-1
<PAGE>
The rating SP-1 is the highest rating assigned by Standard &
Poor's to municipal notes and indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of
the best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of
high quality with margins of protection ample although not as large as in the
preceding group.
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
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
Investment Income
Interest ................................................ $118,092,977
------------
Expenses
Investment advisory fees ................................ 7,702,090
Distribution fees ....................................... 9,304,376
Service organization fees ............................... 471,499
Directors' fees ......................................... 38,473
Custodian fees .......................................... 345,973
Transfer agent fees ..................................... 3,044,149
Legal fees .............................................. 77,139
Audit fees .............................................. 61,049
Registration fees ....................................... 434,000
Insurance expense ....................................... 43,932
Printing fees ........................................... 426,220
Miscellaneous ........................................... 1,884
------------
21,950,784
Less fees waived ........................................ (3,543,632)
Less expense reimbursement by advisor ................... (342,158)
------------
Total expenses ..................................... 18,064,994
------------
Net investment income ................................... 100,027,983
------------
Realized loss on investments ............................ (12,987)
------------
Net increase in net assets resulting from operations .... $100,014,996
============
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
---------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................................... $ 100,027,983 $ 64,913,329
Net gain (loss) on investments .......................................... (12,987) (18,463)
-------------- --------------
Net increase in net assets resulting from operations .................... 100,014,996 64,894,866
-------------- --------------
Distributions to shareholders:
Dividends to shareholders from net investment income:
Bedford shares ........................................................ (49,874,649) (38,765,552)
Cash Preservation shares .............................................. (10,092) (11,336)
Janney Montgomery Scott shares ........................................ (24,434,566) (4,784,092)
RBB shares ............................................................ (2,630) (2,530)
Sansom Street shares .................................................. (25,706,046) (21,349,819)
-------------- --------------
Total distributions to shareholders ................................. (100,027,983) (64,913,329)
-------------- --------------
Net capital share transactions ............................................ 374,464,737 736,630,198
-------------- --------------
Total increase in net assets .............................................. 374,451,750 736,611,735
Net Assets:
Beginning of year ....................................................... 1,821,371,688 1,084,759,953
-------------- --------------
End of year ............................................................. $2,195,823,438 $1,821,371,688
============== ==============
</TABLE>
8
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (b)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR)
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
Income from investment operations:
Net investment income ................... 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both realized
and unrealized) ....................... -- -- -- -- 0.0007
---------- ---------- ---------- ---------- ----------
Total from investment operations ..... 0.0469 0.0486 0.0278 0.0243 0.0382
---------- ---------- ---------- ---------- ----------
Less distributions
Dividends (from net investment income) .. (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital gains) ...... -- -- -- -- (0.0007)
---------- ---------- ---------- ---------- ----------
Total distributions .................. (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ========== ========== ==========
Total Return .............................. 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ........... $1,109,334 $ 935,821 $ 710,737 $ 782,153 $ 736,842
Ratios of expenses to average net assets .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets ................. 4.69% 4.86% 2.78% 2.43% 3.75%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
(b) Financial Highlights relate solely to the Bedford Class of shares within
each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Money Family, the n/i Family, and the Bradford Family. The
Bedford Family represents interests in the four portfolios, one of which is
covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Portfolio seeks to maintain net asset value
per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
10
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to the Investment Advisory Agreements, PNC Institutional
Management Corporation ("PIMC"), a wholly owned subsidiary of PNC Asset
Management Group, Inc., which is in turn a wholly-owned subsidiary of PNC Bank,
National Association ("PNC Bank"), serves as investment advisor for the
portfolio described herein. PNC Bank serves as the sub-advisor for the Money
Market Portfolio.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on the portfolio's average daily net
assets:
.45% of first $250 million of net assets;
.40% of next $250 million of net assets;
.35% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for this portfolio. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
investment portfolio were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ------------ ----------
$7,702,090 $ (3,527,715) $4,174,375
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolio. In addition, PNC Bank serves as custodian for the Fund's portfolios.
PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank Corp.,
serves as each class's transfer and dividend disbursing agent.
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the investment
portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- -------- ---------------
<S> <C> <C> <C>
Bedford Class $1,658,468 $ -- $1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
---------- -------- ----------
Total $3,044,149 $(15,917) $3,028,232
========== ======== ==========
</TABLE>
The Fund, on behalf of each class of shares within this investment
portfolio, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities, Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Cash Preservation, Janney
Montgomery Scott and RBB Classes and up to .20% on an annualized basis for the
Sansom Street Class.
11
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31, 1996, distribution fees for each class were
as follows:
DISTRIBUTION
FEE
------------
Bedford Class $5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
----------
Total $9,304,376
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996 service
organization fees were $471,499 for the Money Market Portfolio.
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
<S> <C> <C>
Shares sold:
Bedford Class $ 3,797,592,288 $ 2,966,911,277
Cash Preservation Class 122,344 84,527
Janney Montgomery Scott Class 2,359,936,867 855,058,809
RBB Class 584,206 31,504
Sansom Street Class 2,191,596,362 1,864,628,110
Shares issued in reinvestment of dividends:
Bedford Class 49,290,088 37,681,204
Cash Preservation Class 10,084 11,226
Janney Montgomery Scott Class 24,077,173 4,534,944
RBB Class 2,625 2,500
Sansom Street Class 18,389,361 16,689,941
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052)
Cash Preservation Class (165,733) (91,268)
Janney Montgomery Scott Class (2,265,789,890) (415,944,656)
RBB Class (580,821) (23,917)
Sansom Street Class (2,127,237,313) (1,813,444,951)
--------------- ---------------
Net increase $ 374,464,737 $ 736,630,198
=============== ===============
Bedford Shares authorized 1,500,000,000 1,500,000,000
=============== ===============
</TABLE>
12
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
MONEY MARKET
PORTFOLIO
---------------
Capital Paid-In
Bedford Class $ 1,109,351,734
Cash Preservation Class 202,360
Janney Montgomery Scott Class 561,873,247
RBB Class 61,412
Sansom Street Class 524,367,399
Other Classes 800
Accumulated Net Realized Loss on Investments
Bedford Class (17,400)
Cash Preservation Class (3)
Janney Montgomery Scott Class (7,821)
RBB Class (1)
Sansom Street Class (8,289)
---------------
$ 2,195,823,438
===============
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, $33,513 capital loss carryovers were available to
offset future realized gains of which $2,062 expires in 2002, $18,464 expires in
2003 and $12,987 expires in 2004.
13
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interest in the Money Market Portfolio: Cash Preservation, Janney Montgomery
Scott, RBB, and Sansom Street. Each class is marketed to different types of
investors. Financial Highlights of the RBB and Cash Preservation classes are not
presented in this report due to their immateriality. Such information is
available in the annual reports of each respective family. The financial
highlights of certain other classes are as follows:
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------------------
FOR THE PERIOD
FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ----------------
<S> <C> <C>
Net asset value, beginning of period ......................... $ 1.00 $ 1.00
-------- --------
Income from investment operations:
Net investment income ...................................... 0.0465 0.0112
-------- --------
Total from investment operations ........................... 0.0465 0.0112
-------- --------
Less distributions
Dividends (from net investment income) ..................... (0.0465) (0.0112)
-------- --------
Total distributions ........................................ (0.0465) (0.0112)
-------- --------
Net asset value, end of period ............................... $ 1.00 $ 1.00
======== ========
Total Return ................................................. 4.76% 5.30%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ............................ $561,865 $443,645
Ratios of expenses to average net assets ................... 1.00%(a) 1.00%(a)(b)
Ratios of net investment income to average net assets ...... 4.65% 5.04%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.23% for the year ended
August 31, 1996, and 1.23% annualized for the period ended August 31, 1995.
(b) Annualized.
</FN>
</TABLE>
14
<PAGE>
THE BEDFORD FAMILY
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) ........................ -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment operations ...... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) ... (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains) ....... -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions ................... (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- --------
Net asset value, end of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ............................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year .................. $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets . .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to average
net assets ............................. 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
15
<PAGE>
================================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
- ---------------------------------------------------
TABLE OF CONTENTS
PAGE
Fee Table ................................. 2
Financial Highlights ...................... 3
Investment Objectives and Policies ........ 5
Purchase and Redemption of Shares ......... 14
Net Asset Value ........................... 16
Management ................................ 16
Distribution of Shares .................... 19
Dividends and Distributions ............... 20
Taxes ..................................... 20
Description of Shares ..................... 21
Other Information ......................... 22
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
OF THE RBB FUND, INC.
The Janney Montgomery Scott Money Funds consists of four classes of common
stock (collectively, the "Janney Classes") of The RBB Fund, Inc. (the "Fund"),
an open-end management investment company incorporated under the laws of the
State of Maryland on February 29, 1988 and is currently operating or proposing
to operate nineteen separate investment portfolios. The shares of such classes
(collectively, the "Janney Shares" or "Shares") offered by this Prospectus
represent interests in a taxable money market portfolio, a municipal money
market portfolio, a U.S. Government obligations money market portfolio and a New
York municipal money market portfolio (collectively, the "Portfolios"). The
investment objectives of each investment portfolio described in this Prospectus
are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of current interest
income as is consistent with maintaining liquidity and stability of
principal. It seeks to achieve such objective by investing in a diversified
portfolio of U.S. dollar-denominated money market instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level of current
interest income exempt from Federal income taxes as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of
the United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested
in Municipal Obligations, the interest on which is exempt from the regular
Federal income tax but which may constitute an item of tax preference for
purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to provide as high a level
of current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing in
short-term U.S. Treasury bills, notes and other obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, and
repurchase agreements relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high a level of
current income that is exempt from Federal, New York State and New York City
personal income taxes as is consistent with preservation of capital and
liquidity. It seeks to achieve its objective by investing primarily in
Municipal Obligations, the interest on which is exempt from the regular
Federal income tax and is not an item of tax preference for purposes of the
Federal alternative minimum tax ("Tax-Exempt Interest") and is exempt from
New York State and New York City personal income taxes.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE FUND INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
An investor may purchase and redeem Shares of any of the Janney Classes
through Janney Montgomery Scott ("JMS"). See "Purchase and Redemption of
Shares."
PNC Institutional Management Corporation ("PIMC") serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC Bank") serves as
sub-adviser for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-adviser, and serves as custodian for the Fund, PFPC
Inc. ("PFPC") serves as administrator to the Municipal Money Market and New York
Municipal Money Market Portfolios and transfer and dividend disbursing agent for
the Fund. Counsellors Securities Inc. (the "Distributor") acts as distributor
for the Fund.
This Prospectus contains concise information that a prospective investor
needs to know before investing. Please keep it for future reference. A Statement
of Additional Information, dated 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (JANNEY SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after waivers)(1) ......... .20% .05% .30% 0%
12b-1 fees (after waivers)(1) .............. .60 .60 .60 .60
Other Expenses (after reimbursements) ...... .20 .29 .10 .33
---- --- ---- ---
Total Fund Operating Expenses
(Janney Shares) (after waivers
and reimbursements) ..................... 1.00% .94% 1.00% .93%
==== === ==== ===
<FN>
(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,
Municipal Money Market Portfolio, Government Obligations Money Market
Portfolio and New York Municipal Money Market Portfolio, Management fees
would be .37%, .33%, .42% and .35%, respectively, 12b-1 fees would be .60%,
.60%, .60% and .60%, respectively; Other Expenses would be .26%, .30%, .23%
and .34%, respectively and Total Fund Operating Expenses would be 1.23%,
1.23%, 1.25% and 1.29%, respectively.
</FN>
</TABLE>
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:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market* ........................ $10 $32 $55 $122
Municipal Money Market* .............. $10 $30 $52 $115
Government Obligations Money Market* . $10 $32 $55 $122
New York Municipal Money Market ...... $ 9 $30 $51 $114
* Other classes of these Portfolios 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
(Janney Shares) After Expense Reimbursements and Waivers" remain the same in the
years shown. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The Fee Table is designed to assist an investor in understanding the
various costs and expenses that an investor in the Janney Shares of the Fund
will bear directly or indirectly. (For more complete descriptions of the various
costs and expenses, see "Management--Investment Adviser and Sub-Adviser" and
"Distribution of Shares" below.) The expense figures are based on actual costs
and fees charged to each class. The Fee Table reflects a voluntary waiver of
Management fees for each Portfolio. However, there can be no assurance that any
future waivers of Management fees will not vary from the figure reflected in the
Fee Table. To the extent that any service providers assume additional
2
<PAGE>
expenses of the Portfolios, such assumption will have the effect of lowering a
Portfolio's overall expense ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and "effective yield."
BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers to the income
generated by an investment in a Portfolio over a seven-day period (which period
will be stated in the advertisement). This income is then "annualized." That is,
the amount of income generated by the investment during that week is assumed to
be generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when annualized,
the income earned by an investment in a Portfolio is assumed to be reinvested.
The "effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. Each of the Municipal Money
Market Portfolio's and the New York Municipal Money Market Portfolio's
"tax-equivalent yield" may also be quoted from time to time, which shows the
level of taxable yield needed to produce an after-tax equivalent to such
Portfolio's tax-free yield. This is done by increasing the Municipal Money
Market Portfolio's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate and by increasing
the New York Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal, New York State and New
York City personal income taxes at stated rates.
The yield of any investment is generally a function of portfolio quality
and maturity, type of investment and operating expenses. The yield on Shares of
any of the Janney Classes will fluctuate and is not necessarily representative
of future results. Any fees charged by JMS directly to their customers in
connection with investments in the Janney Classes are not reflected in the
yields of the Janney Shares, and such fees, if charged, will reduce the actual
return received by shareholders on their investments. The yield on Shares of the
Janney Classes may differ from yields on shares of other classes of the Fund
that also represent interests in the same Portfolio depending on the allocation
of expenses to each of the classes of that Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Janney Classes representing interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios for the periods indicated. The financial data
included in this table for the periods ended August 31, 1996 and 1995 are a part
of the Fund's financial statements for each of such Portfolios 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 included in this table should
be read in conjunction with the financial statements and related notes included
in the Statement of Additional Information.
3
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
--------------------------------- --------------------------------
FOR THE PERIOD FOR THE PERIOD
JUNE 12, 1995 JUNE 12, 1995
FOR THE (COMMENCEMENT OF FOR THE (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ---------- -------- ----------
Income from investment
operations:
Net investment income .......... 0.0465 0.0112 0.0278 0.0063
--------- ---------- -------- ----------
Total from investment
operations ............ 0.0465 0.0112 0.0278 0.0063
--------- ---------- -------- ----------
Less distributions
Dividends (from net
investment income) ........ (0.0465) (0.0112) (0.0278) (0.0063)
--------- ---------- -------- ----------
Total distributions ..... (0.0465) (0.0112) (0.0278) (0.0063)
--------- ---------- -------- ----------
Net asset value,
end of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========== ======== ==========
Total Return ................... 4.76% 5.30%(b) 2.81% 2.87%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) .............. $561,865 $443,645 $89,428 $113,226
Ratios of expenses
to average
net assets ................ 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets ................ 4.65% 5.04%(b) 2.78% 2.83%(b)
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------------- --------------------------------
FOR THE PERIOD FOR THE PERIOD
JUNE 12, 1995 JUNE 9, 1995
FOR THE (COMMENCEMENT OF FOR THE (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- -------- --------
Income from investment
operations:
Net investment income .......... 0.0456 0.0109 0.0262 0.0062
---------- ---------- -------- --------
Total from investment
operations ............ 0.0456 0.0109 0.0262 0.0062
---------- ---------- -------- --------
Less distributions
Dividends (from net
investment income) ........ (0.0456) (0.0109) (0.0262) (0.0062)
---------- ---------- -------- --------
Total distributions ..... (0.0456) (0.0109) (0.0262) (0.0062)
---------- ---------- -------- --------
Net asset value,
end of period ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== ======== ========
Total Return ................... 4.66% 5.03%(b) 2.65% 2.72%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) .............. $306,757 $302,585 $20,032 $14,671
Ratios of expenses
to average
net assets ................ 1.00%(a) 1.00%(a)(b) 0.93%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets ................ 4.56% 4.91%(b) 2.62% 2.68%(b)
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.23% for
the year ended August 31, 1996 and 1.23% annualized for the period ended
August 31, 1995. For the Municipal Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.23% for the year ended
August 31, 1996 and 1.30% annualized for the period ended August 31, 1995.
For the Government Obligations Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.25% for the year ended
August 31, 1996 and 1.28% annualized for the period ended August 31, 1995.
For the New York Municipal Money Market Portfolio, the ratio of expenses to
average net assets would have been 1.29% for the year ended August 31, 1996
and 1.41% annualized for the period ended August 31, 1995.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Montgomery Scott Class of
shares within each portfolio.
</FN>
</TABLE>
4
<PAGE>
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 symbols are
described in the Appendix to the Statement of Additional Information. The
Portfolio may also purchase unrated commercial paper provided that such paper is
determined to be of comparable quality by the Portfolio's investment adviser in
accordance with guidelines approved by the Fund's Board of Directors. Commercial
paper issues in which the Portfolio may invest include securities issued by
corporations without registration under the Securities Act of 1933 (the "1933
Act") in reliance on the exemption from such registration afforded by Section
3(a)(3) thereof, and commercial paper issued in reliance on the so-called
"private placement" exemption from registration which is afforded by Section
4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is restricted as
to disposition under the Federal securities laws in that any resale must
similarly be made in an exempt transaction. Section 4(2) paper is normally
resold to other institutional investors through or with the assistance of
investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include instruments issued
by foreign issuers, such as Canadian Commercial Paper ("CCP"), which is U.S.
dollar-denominated commercial paper issued by a Canadian corporation or a
Canadian counterpart of a U.S. corporation, and in Europaper, which is U.S.
dollar-denominated commercial paper of a foreign issuer, subject to the criteria
stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase variable rate demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustment in the interest rate. Although the
notes are not normally traded and there may be no active secondary market in the
notes, the Portfolio will be able (at any time or during the specified periods
not exceeding 397 calendar days, depending upon the note involved) to demand
payment of the principal of a note. The notes are not typically rated by credit
rating agencies, but issuers of variable rate demand notes must satisfy the same
criteria as set forth above for issuers of commercial paper. If an issuer of a
variable rate demand note defaulted on its payment obligation, the Portfolio
might be unable to dispose of the note because of the absence of an active
secondary market. For this or other reasons, the Portfolio might suffer a loss
to the
5
<PAGE>
extent of the default. The Portfolio invests in variable rate demand notes only
when the Portfolio's investment adviser deems the investment to involve minimal
credit risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase securities from
financial institutions subject to the seller's agreement to repurchase them at
an agreed-upon time and price ("repurchase agreements"). The securities held
subject to a repurchase agreement may have stated maturities exceeding 397
calendar days, provided the repurchase agreement itself matures in less than 397
calendar days. The financial institutions with whom the Portfolio may enter into
repurchase agreements will be banks which the Portfolio's investment adviser
considers creditworthy pursuant to criteria approved by the Board of Directors
and non-bank dealers of U.S. Government securities that are listed on the
Federal Reserve Bank of New York's list of reporting dealers. The Portfolio's
investment adviser will consider, among other things, whether a repurchase
obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be required to maintain the value of
the securities subject to the agreement at not less than the repurchase price
plus accrued interest. The Portfolio's investment adviser will mark to market
daily the value of the securities, and will, if necessary, require the seller to
maintain additional securities, to ensure that the value is not less than the
repurchase price. Default by or bankruptcy of the seller would, however, expose
the Portfolio to possible loss because of adverse market action or delays in
connection with the disposition of the underlying obligations.
U.S. GOVERNMENT OBLIGATIONS. The Portfolio may purchase obligations issued
or guaranteed by the U.S. Government or its agencies and instrumentalities.
Obligations of certain agencies and instrumentalities of the U.S. Government are
backed by the full faith and credit of the United States. Others are backed by
the right of the issuer to borrow from the U.S. Treasury or are backed only by
the credit of the agency or instrumentality issuing the obligation.
ASSET-BACKED SECURITIES. The Portfolio may invest in asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and, instrumentalities
or issued by private companies. Asset-backed securities also include adjustable
rate securities. The estimated life of an asset-backed security varies with the
prepayment experience with respect to the underlying debt instruments. For this
and other reasons, an asset-backed security's stated maturity may be shortened,
and the security's total return may be difficult to predict precisely. Such
difficulties are not expected, however, to have a significant effect on the
Portfolio since the remaining maturity or any asset-backed security acquired
will be 397 days or less. Asset-backed securities are considered an industry for
industry concentration purposes. See "Investment Limitations".
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements with respect to portfolio securities. At the time the
Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act"). The Portfolio would consider
entering into reverse repurchase agreements to avoid otherwise selling
securities during unfavorable market conditions to meet redemptions.
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make investments in
obligations, such as guaranteed investment contracts and similar funding
agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's Investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
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MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when deemed
appropriate by its investment adviser in light of the Portfolio's investment
objective, invest without limitation in high quality, short-term Municipal
Obligations issued by state and local governmental issuers, the interest on
which may be taxable or tax-exempt for Federal income tax purposes, provided
that such obligations carry yields that are competitive with those of other
types of Money Market Instruments of comparable quality. For a more complete
discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by commitments" with
respect to Municipal Obligations held in its portfolio. Under a stand-by
commitment, a dealer would agree to purchase at the Portfolio's option specified
Municipal Obligations at a specified price. The acquisition of a stand-by
commitment may increase the cost, and thereby reduce the yield, of the Municipal
Obligation to which such commitment relates. The Portfolio will acquire stand-by
commitments solely to facilitate portfolio liquidity and does not intend to
exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio securities on
a "when-issued" basis. When issued securities are securities purchased for
delivery beyond the normal settlement date at a stated price and yield. The
Portfolio will generally not pay for such securities or start earning interest
on them until they are received. Securities purchased on a when-issued basis are
recorded as an asset at the time the commitment is entered into and are subject
to changes in value prior to delivery based upon changes in the general level of
interest rates. The Portfolio expects that commitments to purchase when-issued
securities will not exceed 25% of the value of its total assets absent unusual
market conditions. The Portfolio does not intend to purchase when-issued
securities for speculative purposes but only in furtherance of its investment
objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two highest rating categories by
one or more nationally recognized statistical rating organizations ("NRSROs")
(e.g., commercial paper rated "A-1" or "A-2" by S&P), (3) securities that are
rated at the time of purchase by the only NRSRO rating the Security in one of
its two highest rating categories for such securities, and (4) securities that
are not rated and are issued by an issuer that does not have comparable
obligations rated by an NRSRO ("Unrated Securities"), provided that such
securities are determined to be of comparable quality to eligible rated
securities. For a more complete description of eligible securities, see
"Investment Objectives and Policies" in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities, including repurchase agreements which have a
maturity of longer than seven days, time deposits with maturities in excess of
seven days, variable rate demand notes with demand periods in excess of seven
days unless the Portfolio's investment adviser determines that such notes are
readily marketable and could be sold promptly at the prices at which they are
valued, and other securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale.
Repurchase agreements subject to demand are deemed to have a maturity equal to
the notice period. Securities that have legal or contractual restrictions on
resale but have a readily available market are not deemed illiquid for purposes
of this limitation. The Portfolio's investment adviser will monitor the
liquidity of such restricted securities under the supervision of the Board of
Directors. See "Investment Objectives and Policies--Illiquid Securities" in the
Statement of Additional Information.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax. During periods of normal
market conditions, at least 80% of the net assets of the
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Municipal Money Market Portfolio will be invested in Municipal Obligations.
Municipal Obligations include securities the interest on which is Tax-Exempt
Interest, although to the extent the Portfolio invests in certain private
activity bonds issued after August 7, 1986 ("Alternative Minimum Tax
Securities"), a portion of the interest earned by the Portfolio may constitute
an item of tax preference for purposes of the Federal alternative minimum tax
("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase Unrated Securities provided that such securities are determined to be
of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds which are not
payable from the unrestricted revenues of the issuer. Consequently, the credit
quality of private activity bonds is usually directly related to the credit
standing of the corporate user of the facility involved.
Municipal Obligations may also include "moral obligation" bonds, which are
normally issued by special purpose public authorities. If the issuer of moral
obligation bonds is unable to meet its debt service obligations from current
revenues, it may draw on a reserve fund, the restoration of which is a moral
commitment but not a legal obligation of the state or municipality which created
the issuer.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
The Municipal Money Market Portfolio may invest in tax-exempt derivative
securities such as tender option bonds, custodial receipts, participations,
beneficial interests in trusts and partnership interests. A typical tax-exempt
derivative security involves the purchase of an interest in a pool of Municipal
Obligations which interest includes a tender option, demand or other feature,
allowing the Portfolio to tender the underlying Municipal Obligation to a third
party at periodic intervals and to receive the principal amount thereof. In some
cases, Municipal Obligations are represented by custodial receipts evidencing
rights to future principal or interest payments, or both, on underlying
municipal securities held by a custodian and such receipts include the option to
tender the underlying securities to the sponsor (usually a bank, broker-dealer
or other financial institution). Although the Internal Revenue Service has not
ruled on whether the interest received on derivative securities in the form of
participation interests or custodial receipts is Tax-Exempt Interest, opinions
relating to the validity of, and the tax-exempt status of payments received by,
the Portfolio from such derivative securities are rendered by counsel to the
respective sponsors of such derivatives and relied upon by the Portfolio in
purchasing such securities. Neither the Portfolio nor its investment adviser
will review the proceedings relating to the creation of any tax-exempt
derivative securities or the basis for such legal opinions.
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The Portfolio may also purchase portfolio securities on a "when-issued"
basis such as described under "Investment Objectives and Policies--Money Market
Portfolio--When-Issued Securities."
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio such as described under "Investment Objectives
and Policies--Money Market Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will only
purchase "eligible securities" that present minimal credit risks as determined
by the Portfolio's investment adviser pursuant to guidelines adopted by the
Board of Directors. For a more complete description of eligible securities, see
"Investment Objectives and Policies--Money Market Portfolio--Eligible
Securities."
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies -- Illiquid
Securities" in the Statement of Additional Information.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or instrumentalities only when the investment adviser believes
that the credit risk with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns Shares
representing an interest in the Portfolio. Certain government securities held by
the Portfolio may have remaining maturities exceeding 397 calendar days if such
securities provide for adjustments in their interest rates not less frequently
than every 397 calendar days and the adjustments are sufficient to cause the
securities to have market values, after adjustment, which approximate their par
values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). For
a description of repurchase agreements, see "Investment Objectives and
Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements."
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MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself. Interests in
such pools are what this Prospectus calls "mortgage-related securities."
Mortgage-related securities may include asset-backed securities which are
backed by mortgages, installment sales contracts, credit card receivables or
other assets and collateralized mortgage obligations ("CMOs") issued or
guaranteed by U.S. Government agencies and instrumentalities or issued by
private companies. Purchasable mortgage-related securities also include
adjustable rate securities. The estimated life of an asset-backed security
varies with the prepayment experience with respect to the underlying debt
instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less.
LENDING OF SECURITIES. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when it believes that the price of security may decline, causing
a decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for Federal income tax purposes and for certain
purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of illiquid
securities, see "Investment Objectives and Policies -- Money Market Portfolio --
Illiquid Securities" and "Investment Objectives and Policies -- Illiquid
Securities" in the Statement of Additional Information.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment objective is to
provide as high a level of current interest income that is exempt from Federal,
New York State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. During periods of normal market
conditions, at least 80% of the assets will be invested in Municipal
Obligations, the interest on which is Tax-Exempt Interest and which meet certain
ratings criteria
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and present minimal credit risks to the Portfolio. Portfolio obligations held by
the New York Municipal Money Market Portfolio will have remaining maturities of
397 calendar days or less ("short-term" obligations). Dividends paid by the
Portfolio which are derived from interest attributable to tax-exempt obligations
of the State of New York and its political subdivisions, as well as of certain
other governmental issuers such as Puerto Rico ("New York Municipal
Obligations"), will be excluded from gross income for Federal income tax
purposes and exempt from New York State and New York City personal income taxes,
but will be subject to corporate franchise taxes. Dividends derived from
interest on tax-exempt obligations of other governmental issuers will be
excluded from gross income for Federal income tax purposes, but will be subject
to New York State and New York City personal income taxes. The Fund expects
that, except during temporary defensive periods or when acceptable securities
are unavailable for investment by the Fund, at least 65% of the Fund's assets
will be invested in New York Municipal Obligations. There is no assurance that
the investment objective of the New York Municipal Money Market Portfolio will
be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations. For a more complete discussion of Municipal Obligations, see
"Investment Objectives and Policies--Municipal Money Market Portfolio--Municipal
Obligations."
Up to 20% of the Portfolio's assets may be invested in Alternative Minimum
Tax Securities. Investors should be aware of the possibility of Federal, state
and local alternative minimum or minimum income tax liability on interest from
Alternative Minimum Tax Securities. Although the New York Municipal Money Market
Portfolio may invest more than 25% of its net assets in (i) Municipal
Obligations the interest on which is paid solely from revenues of similar
projects, and (ii) private activity bonds bearing Tax-Exempt Interest, it does
not currently intend to do so on a regular basis.
The New York Municipal Money Market Portfolio may invest in tax-exempt
derivative securities such as tender option bonds, custodial receipts,
participations, beneficial interests in trusts and partnership interests. For a
description of such securities, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
The Portfolio may also purchase portfolio securities on a "when-issued"
basis such as described under "Investment Objectives and Policies--Money Market
Portfolio--When Issued Securities."
The Portfolio may acquire "stand-by commitments" with respect to Municipal
Obligations held in its portfolio such as described under "Investment Objectives
and Policies--Money Market Portfolio--Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other purposes
invest in certain short-term taxable securities when the Portfolio's investment
adviser believes that it would be in the best interests of the Portfolio's
investors to do so. Taxable securities in which the Portfolio may invest on a
short-term basis are obligations of the U.S. Government, its agencies or
instrumentalities, including repurchase agreements with banks or securities
dealers involving such securities; time deposits maturing in not more than seven
days; other debt securities rated within the two highest ratings assigned by
Moody's or S&P; commercial paper rated in the highest grade by Moody's or S&P;
and certificates of deposit issued by United States branches of United States
banks with assets of $1 billion or more. At no time will more than 20% of the
Portfolio's total assets be invested in taxable short-term securities unless the
Portfolio's investment adviser has determined to temporarily adopt a defensive
investment policy in the face of an anticipated softening in the market for
Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market Portfolio will
only purchase "eligible securities." For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities."
SPECIAL CONSIDERATIONS. As a non-diversified investment company, the
Portfolio may invest a greater proportion of its assets in the obligations of a
smaller number of issuers relative to a diversified portfolio. As a result, the
value of a non-diversified investment portfolio will fluctuate to a greater
degree upon changes in the value of each underlying security. In the opinion of
the Portfolio's investment adviser, any risk to the Portfolio should be limited
by its intention
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to continue to conduct its operations so as to qualify as a "regulated
investment company" for purposes of the Internal Revenue Code of 1986, as
amended, and by its policies restricting investments to obligations with
short-term maturities and obligations which qualify as eligible securities. In
order to qualify as a "regulated investment company" under the Internal Revenue
Code of 1986, as amended, the Portfolio will not purchase the securities of any
issuer if as a result more than 5% of the value of the Portfolio's assets would
be invested in the securities of such issuer, except that (a) up to 50% of the
value of the Portfolio's assets may be invested without regard to this 5%
limitation, provided that no more than 25% of the value of the Portfolio's
assets are invested in the securities of any one issuer and (b) this 5%
limitation does not apply to securities issued or guaranteed by the U.S.
Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
The Portfolio's ability to meet its investment objective is dependent upon
the ability of issuers of New York Municipal Obligations to meet their
continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening economic
problems which could seriously affect their ability and that of other issuers of
New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of New York
Municipal Obligations (including issuers whose obligations may be acquired by
the Portfolio) have experienced serious financial difficulties in recent years.
These difficulties have at times jeopardized the credit standing and impaired
the borrowing abilities of all New York issuers and have generally contributed
to higher interest costs for their borrowing and lower market prices for their
outstanding debt obligations. In recent years, several different issues of
municipal securities of New York State and its agencies and instrumentalities
and of New York City have been downgraded by Standard & Poor's Corporation
("S&P") and Moody's Investor Service, Inc. ("Moody's"). On the other hand,
strong demand for New York Municipal Obligations has more recently had the
effect of permitting New York Municipal Obligations to be issued with yields
relatively lower, and after issuance to trade in the market at prices relatively
higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
those issuer's existing obligations and, possibly, in the obligations of other
issuers of New York Municipal Obligations. Although no issuers of New York
Municipal Obligations were as of the date of this Prospectus in default with
respect to the payment of their debt obligations, the occurrence of any such
default could adversely affect the market values and market ability of all New
York Municipal Obligations and consequently, the net asset value of the
Portfolio's shows. Some of the significant financial considerations relating to
the Fund's investments in New York Municipal Obligations are summarized in the
Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its net
assets in illiquid securities. For a more complete description of Illiquid
Securities, see "Investment Objectives and Policies--Money Market
Portfolio--Illiquid Securities" and "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
INVESTMENT LIMITATIONS
The Money Market, Municipal Money Market, Government Obligations Money
Market and New York Municipal Money Market Portfolios' respective investment
objectives and the policies described above may be changed by the Fund's Board
of Directors without the affirmative vote of the holders of a majority of the
respective Portfolios' outstanding shares. Such changes may result in a
Portfolio having investment objectives which differ from those an investor may
have considered at the time of investment. There is no assurance that the
investment objectives of the Portfolios will be achieved. The Portfolios may
not, however, change the following investment limitations without such a vote of
their respective shareholders. (A more detailed description of the following
investment limitations, together
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with other investment limitations that cannot be changed without a vote of
shareholders, is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Portfolios may not borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in amounts not
in excess of 10% of the value of a Portfolio's assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or hypothecate any
of its assets except in connection with any such borrowing and in amounts not in
excess of 10% of the value of a Portfolio's assets at the time of such
borrowing; or purchase portfolio securities while borrowings in excess of 5% of
the Portfolio's net assets are outstanding. (This borrowing provision is not for
investment leverage, but solely to facilitate management of a Portfolio's
securities by enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.)
The Money Market and Municipal Money Market Portfolios may not:
1. Purchase securities of any one issuer, other than securities issued
or guaranteed by the U.S. Government or its agencies and instrumentalities,
if immediately after and as a result of such purchase more than 5% of the
value of its total assets would be invested in the securities of such
issuer, or more than 10% of the outstanding voting securities of such
issuer would be owned by a Portfolio, except that up to 25% of the value of
a Portfolio's total assets may be invested without regard to such 5%
limitation.
The Money Market Portfolio may not:
1. Purchase any securities other than Money Market Instruments, some of
which may be subject to repurchase agreements, but the Portfolio may make
interest-bearing savings deposits in amounts not in excess of 5% of the
value of the Portfolio's assets and may make time deposits.
2. Purchase any securities which would cause, at the time of purchase,
less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations
(unless the Portfolio is in a temporary defensive position) or which would
cause, at the time of purchase, more than 25% of the value of its total
assets to be invested in the obligations of issuers in any other industry.
The Municipal Money Market may not:
1. Purchase any securities which would cause more than 25% of the value
of the total assets of the Portfolio to be invested in obligations at the
time of purchase to be invested of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Municipal Money Market Portfolio's outstanding shares, the Portfolio may not
change its policy of investing during normal market conditions at least 80% of
its net assets in obligations the interest on which is Tax-Exempt Interest of
AMT Interest.
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for
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<PAGE>
realized capital gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax provision applicable
to regulated investment companies.
The New York Municipal Money market may not:
1. Purchase any securities which would cause 25% or more of the value
of the Portfolio's total assets at the time of purchase to be invested in
the securities of issuers conducting their principal business activities in
the same industry; provided that this limitation shall not apply to
Municipal Obligations or governmental guarantees of Municipal Obligations;
and provided, further, that for the purpose of this limitation only,
private activity bonds that are considered to be issued by non-governmental
users (see the second investment limitation above) shall not be deemed to
be Municipal Obligations.
In addition, without the affirmative vote of the holders of a majority of
the New York Municipal Money Market Portfolio's outstanding shares, the
Portfolio may not change its policy of investing during normal market conditions
at least 80% of its net assets in obligations the interest on which is
Tax-Exempt Interest.
PURCHASE AND REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
PURCHASE PROCEDURES
GENERAL. Janney Shares are sold without a sales load on a continuous basis.
Investors may purchase Janney Shares through an account maintained by the
investor with JMS ("the Account"). The Fund in its sole discretion may accept or
reject any order for purchases of Janney Shares.
All payments for initial and subsequent investments should be in U.S.
dollars. JMS is responsible for the prompt transmission of the order to the
Fund's transfer agent. Purchases will be effected at the net asset value next
determined after PFPC, the Fund's transfer agent, has received a purchase order
in proper form from JMS and the Fund's custodian has Federal Funds immediately
available to it. In those cases where payment is made by check, Federal Funds
will generally become available two Business Days after the check is received by
JMS. Orders which are accompanied by Federal Funds and received by the Fund by
12:00 noon Eastern Time, and orders as to which payment has been converted into
Federal Funds by 12:00 noon Eastern Time, will be executed as of 12:00 noon that
Business Day. Orders which are accompanied by Federal Funds and received by the
Fund after 12:00 noon Eastern Time but prior to 4:00 p.m. Eastern Time, and
orders as to which payment has been converted into Federal Funds after 12:00
noon Eastern Time but prior to 4:00 p.m. Eastern Time on any Business Day of the
Fund, will be executed as of 4:00 p.m. Eastern Time on that Business Day, but
will not be entitled to receive dividends declared on such Business Day. Orders
which are accompanied by Federal Funds and received by the Fund as of 4:00 p.m.
Eastern Time or later, and orders as to which payment has been converted to
Federal Funds as of 4:00 p.m. Eastern Time or later on a Business Day will be
processed as of 12:00 noon Eastern Time on the following Business Day. A
"Business Day" is any day that both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be effected through
an investor's Account with JMS through procedures established in connection with
the requirements of Accounts at JMS. In such event, beneficial ownership of
Janney Shares will be recorded by JMS and will be reflected in the Account
statements provided by JMS to such investors. JMS may impose minimum investor
Account requirements. Although JMS does not impose a sales charge for purchases
of Janney Shares, depending on the terms of an investor's Account with JMS, JMS
may charge an investor's Account fees for automatic investment and other
services provided to the Account. Information concerning Account requirements,
services and charges should be obtained from JMS. This Prospectus should be read
in conjunction with any information received from JMS.
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<PAGE>
JMS may offer investors the ability to purchase Janney Shares under an
automatic purchase program (a "Purchase Program") established by it. An investor
who participates in a Purchase Program will have his "free-credit" cash balances
in his Account with JMS automatically invested in Shares of Janney Class
designated by the investor as the "Primary Janney Class" for his Purchase
Program. The frequency of investments and the minimum investment requirement may
be established by JMS and the Fund. In addition, JMS may require a minimum
amount of cash and/or securities to be deposited in an Account for participants
in its Purchase Program. The description of the particular JMS's Purchase
Program should be read for details, and any inquiries concerning an Account
under a Purchase Program should be directed to JMS. A participant in a Purchase
Program may change the designation of the Primary Janney Class at any time by so
instructing JMS.
If JMS makes special arrangements under which orders for Janney Shares are
received by PFPC prior to 12:00 noon Eastern Time, and the JMS guarantees that
payment for such Shares will be made in Federal Funds to the Fund's custodian
prior to 4:00 p.m. Eastern Time, on the same day, such purchase orders will be
effective and Shares will be purchased at the offering price in effect as of
12:00 noon Eastern Time on the date the purchase order is received by PFPC.
REDEMPTION PROCEDURES
Redemption orders are effected at the net asset value per share next
determined after receipt of the order in proper form by the Fund's transfer
agent, PFPC. Investors may redeem all or some of their Shares in accordance with
one of the procedures described below.
REDEMPTION OF SHARES IN AN ACCOUNT. An investor who beneficially owns
Janney Shares may redeem Janney Shares in his Account in accordance with
instructions and limitations pertaining to his Account by contacting JMS. It is
the responsibility of JMS to transmit purchase and redemption orders to PFPC and
credit its investors' accounts with the redemption proceeds on a timely basis.
If such notice is received by PFPC by 12:00 noon Eastern Time on any Business
Day, the redemption will be effective as of 12:00 noon Eastern Time on that day.
Payment of the redemption proceeds will be made after 12:00 noon Eastern Time on
the day the redemption is effected, provided that the Fund's custodian is open
for business. If the custodian is not open, payment will be made on the next
bank business day. If the redemption request is received between 12:00 noon and
4:00 p.m. Eastern Time on a Business Day, the redemption will be effective as of
4:00 p.m. Eastern Time on such Business Day and payment will be made on the next
bank business day following receipt of the redemption request. If all shares are
redeemed, all accrued but unpaid dividends on those shares will be paid with the
redemption proceeds.
JMS will also redeem each day a sufficient number of Shares of the Primary
Janney Class to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Janney Shares will be redeemed on the same
day that a transaction occurs that results in such a debit balance or charge.
JMS reserves the right to waive or modify criteria for participation in an
Account or to terminate participation in an Account for any reason.
REDEMPTION BY CHECK. The Fund provides investors with forms of drafts
("checks") payable through PNC Bank. These checks may be made payable to the
order of anyone. An investor wishing to use this check writing redemption
procedure should complete specimen signature cards, and then forward such
signature cards to JMS. JMS will then arrange for the checks to be honored by
PNC Bank. Investors who own Janney Shares through an Account should contact JMS
for signature cards. Investors of joint accounts may elect to have checks
honored with a single signature. Check redemptions will be subject to PNC Bank's
rules governing checks. An investor will be able to stop payment on a check
redemption. The Fund or PNC Bank may terminate this redemption service at any
time, and neither shall incur any liability for honoring checks, for effecting
redemptions to pay checks, or for returning checks which have not been accepted.
15
<PAGE>
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 REDEMPTION INFORMATION. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The net asset value per share of each of the Portfolios for the purpose of
pricing purchase and redemption orders is determined twice each day, once as of
12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on each weekday
with the exception of those holidays on which either the NYSE or the FRB is
closed. Currently, the NYSE 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 weedends 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. Each Portfolio's net asset
value per share is calculated by adding the value of all securities and other
assets of the Portfolio, subtracting its liabilities and dividing the result by
the number of its outstanding shares. The net asset value per share of each
Portfolio is determined independently of any of the Fund's other investment
portfolios.
The Fund seeks to maintain for each of the Portfolios a net asset value of
$1.00 per share for purposes of purchases and redemptions and values its
portfolio securities on the basis of the amortized cost method of valuation
described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may use a pricing
service, bank or broker-dealer experienced in such matters to value the
Portfolio's securities. A more detailed discussion of net asset value and
security valuation is contained in the Statement of Additional Information.
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio are
managed under the direction of the Fund's Board of Directors. The Fund currently
operates or proposes to operate nineteen separate investment portfolios. Each of
the Janney Classes represents interests in one of the following such investment
portfolios: the Money Market Portfolio, the Municipal Money Market Portfolio,
the Government Obligations Money Market Portfolio and the New York Municipal
Money Market Portfolio.
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<PAGE>
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for each of the Portfolios. PIMC was organized in 1977 by PNC Bank to
perform advisory services for investment companies, and has its principal
offices at Bellevue Park Corporate Center, 400 Bellevue Parkway, Wilmington,
Delaware 19809. PNC Bank serves as the sub-adviser for each of the Portfolios
other than the New York Municipal Money Market Portfolio, which has no
sub-adviser. PNC Bank and its predecessors have been in the business of managing
the investments of fiduciary and other accounts in the Philadelphia area since
1847. PNC Bank 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 Portfolios, PIMC manages such Portfolios and
is responsible for all purchases and sales of portfolio securities. PIMC also
assists generally in supervising the operations of the Portfolios, and maintains
the Portfolios' financial accounts and records. PNC Bank, as sub-adviser to all
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-adviser, provides research and credit analysis and provides PIMC with
certain other services. In entering into Portfolio transactions for a Portfolio
with a broker, PIMC may take into account the sale by such broker of shares of
the Fund, subject to the requirements of best execution.
For the services provided to and expenses assumed by it for the benefit of
each of the Money Market and Government Obligations Money Market Portfolios,
PIMC is entitled to receive the following fees, computed daily and payable
monthly based on a Portfolio's average daily net assets: .45% of the first $250
million; .40% of the next $250 million; and .35% of net assets in excess of $500
million.
For the services provided and expenses assumed by it with respect to the
Municipal Money Market and the New York Municipal Money Market Portfolios, PIMC
is entitled to receive the following fees, computed daily and payable monthly
based on the Portfolio's average daily net assets: .35% of the first $250
million; .30% of the next $250 million; and .25% of net assets in excess of $500
million.
PIMC may in its discretion from time to time agree to waive voluntarily all
or any portion of its advisory fee for any Portfolio. For its sub-advisory
services, PNC Bank is entitled to receive from PIMC an amount equal to 75% of
the advisory fees paid by the Fund to PIMC with respect to any Portfolio for
which PNC Bank acts as sub-adviser. Such sub-advisory fees have no effect on the
advisory fees payable by such Portfolio to PIMC. In addition, PIMC may from time
to time enter into an agreement with one of its affiliates pursuant to which it
delegates some or all of its accounting and administrative obligations under its
advisory agreements with the Fund relating to any Portfolio. Any such
arrangement would have no effect on the advisory fees payable by each Portfolio
to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund paid investment
advisory fees aggregating .20% of the average net assets of the Money Market
Portfolio, .05% of the average net assets of the Municipal Money Market
Portfolio, .30% of the average net assets of the Government Obligations Money
Market Portfolio and 0% of the average net assets of the New York Municipal
Money Market Portfolio. For that same year, PIMC waived approximately .17%,
.28%, .12% and .35% of the average net assets of the Money Market Portfolio, the
Municipal Money Market Portfolio, the Government Obligations Money Market
Portfolio and the New York Municipal Money Market Portfolio, respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market and the New
York Municipal Money Market Portfolios and generally assists such Portfolios in
all aspects of their administration and operations, including matters relating
to the maintenance of financial records and accounting. PFPC is entitled to an
administration fee, computed daily and payable monthly at a rate of .10% of the
average daily net assets of the Municipal Money Market and New York Municipal
Money Market Portfolios.
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<PAGE>
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an indirect wholly
owned subsidiary of PNC Bank Corp, serves as the Fund's transfer agent and
dividend disbursing agent. PFPC may enter into shareholder servicing agreements
with registered broker/dealers who have entered into dealer agreements with the
Distributor for the provision of certain shareholder support services to
customers of such broker/dealers who are shareholders of the Portfolios. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total income of such
Portfolio before dividends are paid. These expenses include, but are not limited
to, organizational costs, fees paid to the investment adviser, fees and expenses
of officers and directors who are not affiliated with the Portfolio's investment
adviser or Distributor, taxes, interest, legal fees, custodian fees, auditing
fees, brokerage fees and commissions, certain of the fees and expenses of
registering and qualifying the Portfolio and its shares for distribution under
Federal and state securities laws, expenses of preparing prospectuses and
statements of additional information and of printing and distributing
prospectuses and statements of additional information annually to existing
shareholders that are not attributable to a particular class, the expense of
reports to shareholders, shareholders' meetings and proxy solicitations that are
not attributable to a particular class, fidelity bond and directors and officers
liability insurance premiums, the expense of using independent pricing services
and other expenses which are not expressly assumed by the Portfolio's investment
adviser under its advisory agreement with the Portfolio. Any general expenses of
the Fund that are not readily identifiable as belonging to a particular
investment portfolio of the Fund will be allocated among all investment
portfolios of the Fund based upon the relative net assets of the investment
portfolios at the time such expenses were accrued. In addition, distribution
expenses, transfer agency expenses, expenses of preparing, printing and
distributing prospectuses, statements of additional information, proxy
statements and reports to shareholders, and registration fees identified as
belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio for the
amount, if any, by which the total operating and management expenses of such
Portfolio for any fiscal year exceed the most restrictive state blue sky expense
limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the Portfolios
from time to time. In certain circumstances, it may assume such expenses on the
condition that it is reimbursed by the Portfolios for such amounts prior to the
end of a fiscal year. In such event, the reimbursement of such amounts will have
the effect of increasing a Portfolio's expense ratio and of decreasing yield to
investors.
For the Fund's fiscal year ended August 31, 1996, the Fund's total expenses
were 1.23% annualized of the average net assets with respect to the Janney Class
of the Money Market Portfolio (not taking into account waivers and
reimbursements of .23%), were 1.23% annualized of the average net assets with
respect to the Janney Class of the Municipal Money Market Portfolio (not taking
into account waivers and reimbursements of .29%), were 1.25% annualized of the
average net assets with respect to the Janney Class of the Government
Obligations Money Market Portfolio (not taking into account waivers and
reimbursements of .25%) and were 1.29% annualized of the average net assets with
respect to the Janney Class of the New York Municipal Money Market Portfolios
(not taking into account waivers and reimbursements of .36%).
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<PAGE>
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
Counsellors Securities Inc. (the "Distributor"), a wholly owned subsidiary
of Warburg, Pincus Counsellors Inc., with an address at 466 Lexington Avenue,
New York, New York, acts as distributor of the Shares of each of the Janney
Classes of the Fund pursuant to separate distribution contracts (collectively,
the "Distribution Contracts") with the Fund on behalf of each of the Janney
Classes.
The Board of Directors of the Fund approved and adopted the Distribution
Contracts and separate Plans of Distribution for each of the Classes
(collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under
each of the Plans, the Distributor is entitled to receive from the relevant
Janney Class a distribution fee, which is accrued daily and paid monthly, of up
to .65% on an annualized basis of the average daily net assets of the relevant
Janney Class. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Under the
Distribution Contracts, the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the class on an annualized basis in any year. Pursuant to
the conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to a Janney
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant Plan, the
Distributor may reallocate an amount up to the full fee that it receives to
financial institutions, including broker/dealers, based upon the aggregate
investment amounts maintained by and services provided to shareholders of any
relevant Class serviced by such financial institutions. The Distributor may also
reimburse broker/dealers for other expenses incurred in the promotion of the
sale of Fund shares. The Distributor and/or broker/dealers pay for the cost of
printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is in effect, to
accrue and pay to the Distributor on behalf of each Janney Class the fee agreed
to under the relevant Distribution Contract. None of the Plans obligates the
Fund to reimburse the Distributor for the actual expenses the Distributor may
incur in fulfilling its obligations under a Plan on behalf of the relevant
Janney Class. Thus, under each of the Plans, even if the Distributor's actual
expenses exceed the fee payable to the Distributor thereunder at any given time,
the Fund will not be obligated to pay more than that fee. If the Distributor's
actual expenses are less than the fee it receives, the Distributor will retain
the full amount of the fee.
The Plans in effect with respect to the Janney Classes of the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios have been approved by the sole shareholder of
each such Class. Under the terms of Rule 12b-1, each will remain in effect only
if approved at least annually by the Fund's Board of Directors, including those
directors who are not "interested persons" of the Fund as that term is defined
in the 1940 Act and who have no direct or indirect financial interest in the
operation of the Plan or in any agreements related thereto ("12b-1 Directors").
Each of the Plans may be terminated at any time by vote of a majority of the
12b-1 Directors or by vote of a majority of the Fund's outstanding voting
securities of the relevant Janney Class. The fee set forth above will be paid by
the Fund on behalf of the relevant Janney Class to the Distributor unless and
until the relevant Plan is terminated or not renewed.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
- --------------------------------------------------------------------------------
The Fund will distribute substantially all of the net investment income and
net realized capital gains, if any, of each of the Portfolios to each
Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares of the relevant Janney Class unless a
shareholder elects otherwise.
The net investment income (not including any net short-term capital gains)
earned by each Portfolio will be declared as a dividend on a daily basis and
paid monthly. Dividends are payable to shareholders of record immediately prior
to the determination of net asset value made as of 4:00 p.m. Eastern Time. Net
short-term capital gains, if any, will be distributed at least annually.
TAXES
- --------------------------------------------------------------------------------
The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolios and their shareholders and
is not intended as a substitute for careful tax planning. Accordingly, investors
in the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. So long as
a Portfolio qualifies for this tax treatment, such Portfolio will be relieved of
Federal income tax on amounts distributed to shareholders, but shareholders,
unless otherwise exempt, will pay income or capital gains taxes on amounts so
distributed (except distributions that constitute "exempt interest dividends" or
that are treated as a return of capital) regardless of whether such
distributions are paid in cash or reinvested in additional shares. None of the
Portfolios intends to make distributions that will be eligible for the corporate
dividends received deduction.
Distributions out of the "net capital gain" (the excess of net long-term
capital gain over net short-term capital loss), if any, of any Portfolio will be
taxed to shareholders as long-term capital gain regardless of the length of time
a shareholder has held his Shares, whether such gain was reflected in the price
paid for the Shares, or whether such gain was attributable to securities bearing
tax-exempt interest. All other distributions, to the extent they are taxable,
are taxed to shareholders as ordinary income. The maximum marginal rate on
ordinary income for individuals, trusts and estates is generally 31%, while the
maximum rate imposed on net capital gain of such taxpayers is 28%. Corporate
taxpayers are taxed at the same rates on both ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York Municipal Money
Market Portfolio intend to pay substantially all of their dividends as "exempt
interest dividends." Investors in either of these Portfolios should note,
however, that taxpayers are required to report the receipt of tax-exempt
interest and "exempt interest dividends" in their Federal income tax returns and
that in two circumstances such amounts, while exempt from regular Federal income
tax, are subject to Federal alternative minimum tax at a rate of 24% in the case
of individuals, trusts and estates and 20% in the case of corporate taxpayers.
First, tax-exempt interest and "exempt interest dividends" derived from certain
private activity bonds issued after August 7, 1986, will generally constitute an
item of tax preference for corporate and noncorporate taxpayers in determining
Federal alternative minimum tax liability. The New York Municipal Money Market
Portfolio may invest up to 20% of its net assets in such private activity bonds
and the Municipal Money Market Portfolio may invest up to 100% of its net assets
in such private activity bonds, although the Municipal Money Market Portfolio
does not presently intend to do so. Secondly, tax-exempt interest and "exempt
interest dividends" derived from all Municipal Obligations must be taken into
account by corporate taxpayers in determining their adjusted current earnings
adjustment for Federal alternative minimum tax purposes. Investors should be
aware of the possibility of state and local alternative minimum or minimum
income tax liability, in addition to Federal alternative minimum tax.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments. Exempt interest
dividends derived from interest on New York Municipal Obligations will also be
exempt from New York State and New York City personal income (but not corporate
franchise) taxes.
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<PAGE>
Each of the Municipal Money Market Portfolio and the New York Municipal
Money Market Portfolio will determine annually the percentages of its net
investment income which are exempt from the regular Federal income tax, which
constitute an item of tax preference for purposes of the Federal alternative
minimum tax, and which are fully taxable and will apply such percentages
uniformly to all distributions declared from net investment income during that
year. These percentages may differ significantly from the actual percentages for
any particular day. In addition, the New York Municipal Money Market Portfolio
will determine annually the percentage amounts exempt from New York State and
New York City personal income taxes, and the amounts, if any, subject to such
taxes. The exclusion or exemption of interest income for Federal income tax
purposes, or New York State or New York City personal income tax purposes, in
most cases does not result in an exemption under the tax laws of any other state
or local authority. Investors who are subject to tax in other states or
localities should consult their own tax advisers about the taxation of dividends
and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by each Portfolio. Dividends declared in
October, November or December of any year payable to shareholders of record on a
specified date in such a month will be deemed to have been received by the
shareholders on December 31, provided such dividends are paid during January of
the following year. Each Portfolio intends to make sufficient actual or deemed
distributions prior to the end of each calendar year to avoid liability for
Federal excise tax.
Shareholders who are nonresident alien individuals, foreign trusts or
estates, foreign corporations or foreign partnerships may be subject to
different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to constitute a balanced
investment program. Shares of the Municipal Money Market Portfolio and New York
Municipal Money Market Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts since
such plans and accounts are generally tax-exempt and, therefore, not only would
not gain any additional benefit from the Portfolios' dividends being tax-exempt
but also such dividends would be taxable when distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in one or more Portfolios of
the Fund. Shareholders are also urged to consult their tax advisers concerning
the application of state and local income taxes to investments in the Fund which
may differ from the Federal and state income tax consequences described above.
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.
21
<PAGE>
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED
HEREIN RELATE PRIMARILY TO THE JANNEY CLASSES AND DESCRIBE ONLY THE INVESTMENT
OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE
JANNEY CLASSES.
Each share that represents an interest in a Portfolio has an equal
proportionate interest in the assets belonging to such Portfolio with each other
share that represents an interest in such Portfolio, even where a share has a
different class designation than another share representing an interest in that
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares of the Fund will be
fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a meeting
of shareholders to consider the removal of one or more directors. To the extent
required by law, the Fund will assist in shareholder communication in such
matters.
Holders of shares of each of the Portfolios will vote in the aggregate and
not by class on all matters, except where otherwise required by law. Further,
shareholders of all investment portfolios of the Fund will vote in the aggregate
and not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 6, 1996, to the Fund's knowledge, no person beneficially
held 25% or more of the outstanding shares of all classes of RBB.
OTHER INFORMATION
- --------------------------------------------------------------------------------
REPORTS AND INQUIRIES
Shareholders will receive unaudited semi-annual reports describing the
Fund's investment operations and annual financial statements audited by
independent accountants. Shareholder inquiries should be addressed to Janney
Montgomery Scott, 1801 Market Street, Philadelphia, PA 19103-1675; toll free
1-800-JANNEYS.
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JANNEY MONTGOMERY SCOTT MONEY FUNDS
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Janney
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Janney Montgomery Scott Money Funds Prospectus of the Fund dated 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 1
Investment Objectives and Policies ....... 2 5
Directors and Officers ................... 34 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 37 16
Portfolio Transactions ................... 42 N/A
Purchase and Redemption Information ...... 44 14
Valuation of Shares ...................... 44 16
Taxes .................................... 47 19
Additional Information Concerning Fund
Shares.................................. 52 21
Miscellaneous ............................ 54 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 four
classes of shares (the "Janney Classes") representing interests in four
investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Janney Classes are offered by the Prospectus dated 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
2
<PAGE>
its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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<PAGE>
Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
4
<PAGE>
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
investment purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
5
<PAGE>
MUNICIPAL OBLIGATIONS. Municipal Obligations may include
variable rate demand notes. Such notes are frequently not rated by credit rating
agencies, but unrated notes purchased by the Portfolio will have been determined
by the Portfolio's investment adviser to be of comparable quality at the time of
the purchase to rated instruments purchasable by the Portfolio. Where necessary
to ensure that a note is of eligible quality, the Portfolio will require that
the issuer's obligation to pay the principal of the note be backed by an
unconditional bank letter or line of credit, guarantee or commitment to lend.
While there may be no active secondary market with respect to a particular
variable rate demand note purchased by a Portfolio,the Portfolio may, upon the
notice specified in the note, demand payment of the principal of the note at any
time or during specified periods not exceeding 397 calendar days, depending upon
the instrument involved. The absence of such an active secondary market,
however, could make it difficult for the Portfolio to dispose of a variable rate
demand note if the issuer defaulted on its payment obligation or during the
periods that the Portfolio is not entitled to exercise its demand rights. The
Portfolio could, for this or other reasons, suffer a loss to the extent of the
default. The Portfolio invests in variable rate demand notes only when the
Portfolio's investment adviser deems the investment to involve minimal credit
risk. The Portfolio's investment adviser also monitors the continuing
creditworthiness of issuers of such notes to determine whether the Portfolio
should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
U.S. GOVERNMENT OBLIGATIONS. Examples of types of U.S.
Government obligations include U.S. Treasury Bills, Treasury Notes and Treasury
Bonds and the obligations of Federal Home Loan Banks, Federal Farm Credit Banks,
Federal Land Banks, the Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Federal National Mortgage Association, Government National
Mortgage Association, General Services Administration, Student Loan Marketing
Association, Central Bank for Cooperatives, Federal Home Loan Mortgage
6
<PAGE>
Corporation, Federal Intermediate Credit Banks, Maritime Administration,
International Bank for Reconstruction and Development (the "World Bank"), the
Asian-American Development Bank and the Inter-American Development Bank.
SECTION 4(2) PAPER. "Section 4(2) paper" is commercial paper
which is issued in reliance on the "private placement" exemption from
registration which is afforded by Section 4(2) of the Securities Act of 1933.
Section 4(2) paper is restricted as to disposition under the Federal securities
laws and is generally sold to institutional investors such as the Fund which
agree that they are purchasing the paper for investment and not with a view to
public distribution. Any resale by the purchaser must be in an exempt
transaction. Section 4(2) paper normally is resold to other institutional
investors through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. See "Illiquid
Securities" below.
REPURCHASE AGREEMENTS. The repurchase price under the
repurchase agreements described in the Prospectus generally equals the price
paid by a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government.
7
<PAGE>
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
Since the inception of the mortgage-related pass-through
security in 1970, the market for these securities has expanded considerably. The
size of the primary issuance market, and active participation in the secondary
market by securities dealers and many types of investors, historically have made
interests in government and government-related pass-through pools highly liquid,
although no guarantee regarding future market conditions can be made. The
average life of pass-through pools varies with the maturities of the underlying
mortgage instruments. In addition, a pool's term may be shortened by unscheduled
or early payments of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors including the level of
interest rates, general economic conditions, the location and age of the
mortgages and various social and demographic conditions. Because prepayment
rates of individual pools vary widely, it is not possible to predict accurately
the average life of a particular pool. For pools of fixed rate 30 year
mortgages, common industry practice is to assume that prepayments will result in
a 12 year average life. Pools of mortgages with other maturities or different
characteristics will have varying assumptions concerning average life. The
assumed average life of pools of mortgages having terms of less than 30 years is
less than 12 years, but
8
<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
above, reinvestment of prepayments may occur at higher or lower interest rates
than the original investment, thus affecting the yield of the Portfolio
involved.
The coupon rate of interest on mortgage-related securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, but only by the amount of the fees paid to the mortgage pooler, issuer,
and/or guarantor of payment of the securities for the guarantee of the services
of passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
9
<PAGE>
above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
10
<PAGE>
In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
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SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the third most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing, and an
increasing proportion engaged in service industries. New York City (the "City"),
which is the most populous city in the State and nation and is the center of the
nation's largest metropolitan area, accounts for approximately 41% of both the
State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1995-96 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. It stood at 6.9%
in 1994. The total employment growth rate in the State has been below the
national average since 1984, and is expected to grow to less than 0.5% in 1995.
State per capita personal income remains above national average. State per
capita income for 1984 was estimated at $25,999, which was 19.2% above the 1994
estimated national average of $21,809. During the past ten years, total personal
income in the State rose slightly faster than the national average only in 1986
through 1989.
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STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced executive budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the executive budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor is required
to submit to the Legislature, quarterly budget updates which include a revised
cash-basis state financial plan and explanation of any changes from the previous
state financial plan.
The State's budget for the 1995-96 fiscal year was enacted by
the Legislature on June 7, 1995, more than two months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt service. The
State financial plan for the 1995-96 fiscal year was formulated on June 20, 1995
and was based upon the State's budget as enacted by the Legislature and signed
into Law by the Governor (the "1995-96 State Financial Plan").
The 1995-96 State Financial Plan was the first to be enacted
in the administration of the Governor, who assumed office on January 1. It was
the first budget in over half a century which proposed and, as enacted,
projected an absolute year-over-year decline in disbursements in the General
Fund, the State's principal operating fund. Spending for State operations was
projected to drop even more sharply, by 4.6%. Nominal spending from all State
spending sources (I.E., excluding Federal aid) was proposed to increase by only
2.5% from the prior fiscal year, in contrast to the prior decade when such
spending growth averaged more than 6.0% annually.
In his executive budget, the Governor indicated that in the
1995-96 fiscal year, the state financial plan, based on then-current law
governing spending and revenues, would be out of balance by almost $4.7 billion,
as a result of the projected structural deficit resulting from the ongoing
disparity between sluggish growth in receipts, the effect of prior-year tax
changes, and the rapid acceleration of spending growth; the impact of unfunded
1994-95 initiatives, primarily for local aid programs; and the use of one-time
solutions, primarily surplus funds from the prior year, to fund recurring
spending in the 1994-95 budget. The Governor proposed additional tax cuts to
spur economic growth and provide relief for low and middle-income tax payers,
which were larger than those ultimately adopted, and which added $240 million to
the then projected imbalance or budget gap, bringing the total to approximately
$5 billion.
This gap was projected to be closed in the 1995-96 State
Financial Plan through a series of actions, mainly spending
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reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
1995-96 State Financial Plan projected (i) nearly $1.6 billion in savings from
cost containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State workforce, SUNY and CUNY, mental hygiene programs, capital
projects, the prison system and fringe benefits; (iii) $300 million in savings
from local assistance reforms, including actions affecting school aid and
revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily through a new Quick Draw Lottery game, changes to tax
payments schedules, and the sale of assets; and (v) $300 million from
reestimates in receipts.
The 1995-96 State Financial Plan included actions that will
have an effect on the budget outlook for State fiscal year 1996-97 and beyond.
The Division on the Budget estimated that the 1995-96 State Financial Plan
contained actions that provide nonrecurring resources or savings totaling
approximately $900 million while the State comptroller (the "Comptroller")
believed that such amount exceeded $1 billion. In addition to this use of
nonrecurring resources, the 1995-96 State Financial Plan reflected actions that
will directly affect the State's 1996-97 fiscal year baseline receipts and
disbursements. The three-year plan to reduce State personal income taxes will
decrease State tax receipts by an estimated $1.7 billion in State fiscal year
1996-97 in addition to the amount of reduction in State fiscal year 1995-96.
Further significant reductions in the personal income tax are scheduled for the
1997-98 State fiscal year. Other tax reductions enacted in 1994 and 1995 are
estimated to cause an additional reduction in receipts of over $500 million in
1996-97, as compared to the level of receipts in 1995-96. Similarly, many
actions taken to reduce disbursements in the State's 1995-96 fiscal year are
expected to provide greater reductions in the State's fiscal year 1996-97. These
include actions to reduce the State workforce, reduce Medicaid and welfare
expenditures and slow community mental hygiene program development.
The State issued the first of the three required quarterly
updates (the "First Quarter Update") to the 1995-96 State Financial Plan on July
28, 1995. The First Quarter Update projected continued balance in the State's
1995-96 State Financial Plan. Actual cash receipts and disbursements during the
first quarter of the fiscal year were impacted by the late adoption of the
budget, and fell somewhat short of original monthly cashflow estimates. Receipt
variances were mainly related to timing issues rather than changes in the
forecast. Disbursement variances were also ascribed to timing factors.
On October 2, 1995, the State Comptroller releases a report on
the State's financial condition. The report identified
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several risks to the 1995-96 State Financial Plan and also estimated a potential
imbalance in receipts and disbursements in the 1996-97 fiscal year of at least
$2.7 billion and in the 1997-98 fiscal year of at least $3.9 billion. The
Governor is required to submit a balanced budget to the State Legislature and
has indicated that he will close any potential imbalance primarily through
General Fund expenditure reductions and without increases in taxes or deferrals
of scheduled tax reductions.
The State issued its second quarterly update to the 1995-96
State Financial Plan on October 26, 1995 (the "Mid-Year Update" and together
with the First Quarter Update, the "Financial Plan Updates"). The Mid-Year
Update projected continued balance in the 1995-96 State Financial Plan, with
estimated receipts reduced by a net $71 million and estimated disbursements
reduced by a net $30 million as compared to the First Quarter Update. The
resulting General Fund balance decreased from $213 million in the First Quarter
Update to $172 million in the Mid-Year Update, reflecting the use of $41 million
from the contingency reserve fund for payments of litigation and disallowance
expenses.
The 1995-96 State Financial Plan and the Financial Plan
Updates were based on a number of assumptions and projections. Because it is not
possible to predict accurately the occurrence of all factors that may affect the
1995-96 State Financial Plan or the Financial Plan Updates, actual results could
differ materially and adversely from projections made at the outset of a fiscal
year. There can be no assurance that the State will not face substantial
potential budget gaps in future years resulting from a significant disparity
between tax revenues projected from a lower recurring receipts base and the
spending required to maintain State programs at current levels. To address any
potential budgetary imbalance, the State may need to take significant actions to
align recurring receipts and disbursements in future fiscal years.
A significant risk to the 1995-96 State Financial Plan arises
from tax legislation pending in Congress. Changes to federal tax treatment of
capital gains are likely to flow through automatically to the State personal
income tax. Such changes, depending upon their precise character and timing, and
upon taxpayer response, could produce either revenue gains or losses during the
balance of the State's fiscal year.
RECENT FINANCIAL RESULTS. The General Fund is the principal
operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the States largest funds and receives all State taxes and other resources not
dedicated to particular purposes.
The State reported a General Fund operating deficit of $1.426
billion for the 1994-95 fiscal year, as compared to an operating surplus of $914
million for the prior fiscal year. The 1994-95 fiscal year deficit was caused by
several factors,
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including the use of $1.026 billion of 1993-94 cash-based surplus to Fund
operating expenses in 1994-95 and the adoption of changes in accounting
methodologies by the State Comptroller. These factors were offset by net
proceeds of $315 million in bonds issued by the Local Government Assistance
Corporation. The General Fund is projected to be balanced on a cash basis for
the 1995-96 fiscal year.
Total revenues for 1994-95 were 31.455 billion. Revenues
decreased $173 million over the prior fiscal year, a decrease of less than one
percent. Total expenditures for 1994-95 totaled $33.079 billion, an increase of
$2.083 billion, or 6.7 percent over the prior fiscal year.
The State's financial position on a GAAP (generally accepted
accounting principals) basis as of March 31, 1995 showed an accumulated deficit
in its combined governmental funds of $1.666 billion reflecting liabilities of
$14.778 billion and assets of $13.112 billion.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms,
lease-purchase or contractual-obligation financings which involve obligations of
public authorities or municipalities that are State-supported but are not
general obligations of the State. Under these financing arrangements, certain
public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of facilities or the acquisition and rehabilitation of equipment,
and expect to meet their debt service requirements through the receipt of rental
or other contractual payments made by the State. Although these financing
arrangements involve a contractual agreement by the State to make payments to a
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public authority, municipality or other entity, the State's obligation to make
payments is generally expressly made subject to appropriation by the Legislature
and the actual availability of money to the State for making the payments. The
State has also entered into a contractual-obligation financing arrangement with
the Local Government Assistance Corporation ("LGAC") in an effort to restructure
the way the State makes certain local aid payments.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which are to be amortized over no more
than 30 years, was expected to eliminate the need for continued short-term
seasonal borrowing. The legislation also dedicated revenues equal to one-quarter
of the four cent State sales tax and use tax to pay debt service on these bonds.
The legislation also imposed a cap on the annual seasonal borrowing of the State
at $4.7 billion, less net proceeds of bonds issued by LGAC and bonds issued to
provide for capitalized interest, except in cases where the Governor and the
legislative leaders have certified both the need for additional borrowing and
provided a schedule for reducing it to the cap. If borrowing above the cap is
thus permitted in any fiscal year, it is required by law to be reduced to the
cap by the fourth fiscal year after the limit was first exceeded. As of June
1995, LGAC had issued bonds to provide net proceeds of $4.7 billion, completing
the program. The impact of LGAC's borrowing is that the State is able to meet
its cash flow needs in the first quarter of the fiscal year without relying on
short-term seasonal borrowings. The 1995-96 State Financial Plan includes no
spring borrowing nor did the 1994-95 State Financial Plan, which was the first
time in 35 years there was no short-term seasonal borrowing.
In June 1994, the Legislature passed a proposed constitutional
amendment that would significantly change the long-term financing practices of
the State and its public authorities. The proposed amendment would permit the
State, within a formula-based cap, to issue revenue bonds, which would be debt
of the State secured solely by a pledge of certain State tax receipts (including
those allocated to State funds dedicated for transportation purposes), and not
by the full faith and credit of the State. In addition, the proposed amendment
would (i) permit multiple purpose general obligation bond proposals to be
proposed on the same ballot, (ii) require the State debt be incurred only for
capital projects included in a multi-year capital financing plan, and (iii)
prohibit, after its effective date, lease-purchase and contractual-obligation
financing mechanisms for State facilities.
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Before the approved constitutional amendment can be presented
to the voters for their consideration, it must be passed by a separately elected
legislature. The amendment must therefore be passed by the newly elected
Legislature in 1995 prior to presentation to the voters in November 1995. The
amendment was passed by the Senate in June 1995, and the Assembly is expected to
pass the amendment shortly. If approved by the voters, the amendment would
become effective January 1, 1996.
On January 13, 1992, Standard & Poor's Corporation ("Standard
& Poor's) reduced its ratings on the State's general obligation bonds from A to
A- and, in addition, reduced its ratings on the State's moral obligation, lease
purchase, guaranteed and contractual obligation debt. Standard & Poor's also
continued its negative rating outlook assessment on State' general obligation
debt. On April 26, 1993, Standard & Poor's revised the rating outlook assessment
to stable. On February 14, 1994, Standard & Poor's raised its outlook to
positive and, on February 28, 1994, confirmed its A- rating. On January 6, 1992,
Moody's Investors Service, Inc. ("Moody's") reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The State anticipates that its capital programs will be
financed, in part, by State and public authorities borrowings in 1995-96. The
State expects to issue $248 million in general obligation bonds (including ($170
million for purposes of redeeming outstanding bond anticipation notes) and $186
million in general obligation commercial paper. The Legislature has also
authorized the issuance of up to $33 million in certificates of participation
during the State's 1995-96 fiscal year for equipment purchases and $14 million
for capital purposes. These projections are subject to change if circumstances
require.
Principal and interest payments on general obligation bonds
and interest payments on bond anticipation notes and on tax and revenue
anticipation notes were $793.3 million for the 1994-95 fiscal year, and are
estimated to be $774.4 million for the 1995-96 fiscal year. These figures do not
include interest payable on State General Obligation Refunding Bonds issued in
July 1992 ("Refunding Bonds") to the extent that such interest was paid from an
escrow fund established with the proceeds of such Refunding Bonds. Principal and
interest payments on fixed rate and variable rate bonds issued by LGAC were
$239.4 million for the 1994-95 fiscal year, and estimated to be $328.2 million
for 1995-96. State lease-purchase rental and contractual obligation payments for
1994-95, including State installment payments relating to certificates of
participation, were $1.607 billion and are estimated to be $1.641 billion in
1995-96.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been
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called upon to make any direct payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates,
regulations and procedures; (3) an action against New York State and New York
city officials alleging inadequate shelter allowances to maintain proper
housing; (4) challenges to the practice of reimbursing certain Office of Mental
Health patient care expenses from the client's Social Security benefits; (5)
alleged responsibility of New York State officials to assist in remedying racial
segregation in the City of Yonkers; (6) challenges by commercial insurers,
employee welfare benefit plans, and health maintenance organizations to the
impositions of 13%, 11% and 9% surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation to timely provide certain data; (9) a challenge to the
constitutionality of the treatment of certain moneys held in a Supplemental
Reserve Fund; and (10) a challenge to the constitutionality of the State lottery
game.
Several actions challenging the constitutionality of
legislation enacted during the 1990 legislative session which changed actuarial
funding methods for determining state and local contributions to state employee
retirement systems have been decided against the State. As a result, the
Comptroller has developed a plan to restore the State's retirement systems to
prior funding levels. Such funding is expected to exceed prior levels by $30
million in fiscal 1994-95, $63 million in fiscal 1995-96, $116 million in fiscal
1996-97, $193 million in fiscal 1997-98, peaking at $241 million in fiscal
1998-99. Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE v. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State is required to make
aggregate payments of $351.4 million, of which $90.3 million have been made.
Annual payments to the various parties will continue through the State's 2002-03
fiscal year in amounts which will not exceed $48.4 million in any fiscal year
subsequent to the State's 1994-95 fiscal year.
The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State.
Adverse developments in
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these proceedings or the initiation of new proceedings could affect the ability
of the State to maintain a balanced 1995-96 State Financial Plan. An adverse
decision in any of these proceedings could exceed the amount of the 1995-96
State Financial Plan reserve for the payment of judgments and, therefore, could
affect the ability of the State to maintain a balanced 1995-96 State Financial
Plan. In its audited financial statements for the fiscal year ended March 31,
1995, the State reported its estimated liability for awarded and anticipated
unfavorable judgments to be $676 million.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1992, the latest data
available, there were 18 Authorities that had outstanding debt of $100 million
or more. The aggregate outstanding debt, including refunding bonds, of these 18
Authorities was $70.3 billion. As of March 31, 1995, aggregate public authority
debt outstanding as State-supported debt was $27.9 billion and as State-related
debt was $36.1 billion.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance
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payments are so diverted, the affected localities could seek additional State
funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City depends on State
aid both to enable the City to balance its budget and to meet its cash
requirements. The City has achieved balanced operating results for each of its
fiscal years since 1981 as reported in accordance with the then-applicable GAAP.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City
bonds. This suspension remained in effect until March 1981, at which time the
City received an investment grade rating of BBB from Standard & Poor's. On July
2, 1985, Standard & Poor's revised its rating of City bonds upward to BBB+ and
on November 19, 1987, to A-. On July 2, 1993, Standard & Poor's reconfirmed its
A- rating of City bonds, continued its negative rating outlook assessment and
stated that maintenance of such rating depended upon the City's making further
progress towards reducing budget gaps in the outlying years. Moody's ratings of
City bonds were revised in November 1981 from B (in effect since 1977) to Ba1,
in November 1983 to Baa, in December 1985 to Baa1, in May 1988 to A and again in
February 1991 to Baa1. On July 10, 1995, Standard & Poor' downgraded its rating
on the City's $23 billion of outstanding general obligation bonds to "BBB+" from
"A-", citing to the City's chronic structural budget problems and weak economic
outlook. Standard & Poor's stated that New York City's reliance on one-time
revenue measures to close annual budget gaps, a dependence on unrealized labor
savings, overly optimistic estimates of revenues and state and federal aid and
the City's continued high debt levels also contributed to its decision to lower
the rating.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from certain
stock transfer tax revenues, from the City's portion of the State sales tax
derived in the City and from State per capita aid otherwise payable by the State
to the City. Failure by the State to continue the imposition of such taxes, the
reduction of the rate of such taxes to rates less than those in effect on July
2, 1975, failure by the State to pay such aid revenues and the reduction of such
aid
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revenues below a specified level are included among the events of default in the
resolutions authorizing MAC's long-term debt. The occurrence of an event of
default may result in the acceleration of the maturity of all or a portion of
MAC's debt. MAC bonds and notes constitute general obligations of MAC and do not
constitute an enforceable obligation or debt of either the State or the City. As
of June 30, 1995, MAC had outstanding debt on aggregate of approximately $4.882
billion of its bonds. MAC is authorized to issue bonds and notes to refunds its
outstanding bonds and notes and to fund certain reserves, without limitation as
to principal amount, and to finance certain capital commitments to certain
authorities in the event the City fails to provide such financing.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
From time to time, the Control Board staff, OSDC, the City
comptroller and others issue reports and make public statements regarding the
City's financial condition, commenting on, among other matters, the City's
financial plans, projected revenues and expenditures and actions by the City to
eliminate projected operating deficits. Some of these reports and statements
have warned that the City may have underestimated certain expenditures and
overestimated certain revenues and have suggested that the City may not have
adequately provided for future contingencies. Certain of these reports have
analyzed the City's future economic and social conditions and have questioned
whether the City has the capacity to generate sufficient revenues in the future
to meet the costs of its expenditure increases and to provide necessary
services.
The City submitted to the Control Board on July 21, 1995 a
fourth quarter modification to the City's financial plan for the 1995 fiscal
year (the "1995 Modification"), which projects a balanced budget in accordance
with GAAP for the 1995 fiscal year, after taking into account a discretionary
transfer of $75 million. On July 11, 1995, the City submitted to the Control
Board the Financial Plan for the 1996 through 1999 fiscal years (the "1996-1999
Financial Plan").
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The 1996-1999 Financial Plan projected revenues and
expenditures for the 1996 fiscal year balanced in accordance with GAAP. The
projections for the 1996 fiscal year reflected proposed actions to close a
previously projected gap of approximately $3.1 billion for the 1996 fiscal year.
The proposed actions in the 1996-1999 Financial Plan for the 1996 fiscal year
included (i) a reduction in spending of $400 million, primarily affecting public
assistance and Medicaid payment to the City; (ii) expenditure reductions in
agencies, totaling $1.2 billion; (iii) transitional labor savings, totaling $600
million; and (iv) the phase-in of the increased annual pension funding cost due
to revisions resulting from an actuarial audit of the City's pension systems,
which would reduce such costs in the 1996 fiscal year.
The proposed agency spending reductions included the reduction
of City personnel through attrition, government efficiency initiatives,
procurement initiatives and labor productivity initiatives. The substantial
agency expenditure reductions proposed in the 1996-1999 Financial Plan is
subject to the ability of the City to implement proposed reductions in City
personnel and other cost reduction initiatives. In addition, certain initiatives
are subject to negotiation with the City's municipal unions, and various
actions, including proposed anticipated State aid totaling $50 million are
subject to approval by the Governor and the Legislature.
The 1996-1999 Financial Plan also set forth projections for
the 1997 through 1999 fiscal years and outlined a proposed gap-closing program
to eliminate projected gaps of $888 million, $1.5 billion and $1.4 billion for
the 1997, 1998 and 1999 fiscal years, respectively, after successful
implementation of the $3.1 billion gap-closing program for the 1996 fiscal year.
These actions, a substantial number of which were not specified in detail,
include additional agency spending reductions, reduction in entitlements,
government procurement initiatives, revenue initiatives and the availability of
the general reserve.
Contracts with all of the City's municipal unions either
expired in the 1995 fiscal year or will expire in the 1996 fiscal years. The
1996-1999 Financial Plan provided no additional wage increases for City
employees after the 1995 fiscal year. Each 1% wage increase for all union
contracts commencing in the 1995 or 1996 fiscal year would cost the City an
additional $141 million for the 1996 fiscal year and $161 million each year
thereafter above the amounts provided for in the 1996-1999 Financial Plan.
Although the City has balanced its budget since 1981,
estimates of the City's revenues and expenditures, which are based on numerous
assumptions, are subject to various uncertainties. If expected federal or State
aid is not forthcoming, if unforeseen developments in the economy significantly
reduce revenues derived from economically sensitive taxes or necessitate
increased expenditures for public assistance, if the City should negotiate wage
increases for its employees greater than the amounts provided
23
<PAGE>
for in the City's financial plan or if other uncertainties materialize that
reduce expected revenues or increase projected expenditures, then, to avoid
operating deficits, the City may be required to implement additional actions,
including increases in taxes and reductions in essential City services. The City
might also seek additional assistance from New York State.
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City's current monthly cash flow forecast for
the 1996 fiscal year shows a need of $2.4 billion of seasonal financing for the
1996 fiscal year. Seasonal financing requirements for the 1995 fiscal year
increased to $2.2 billion from $1.75 billion and $1.4 billion in the 1994 and
1993 fiscal years, respectively.
Certain localities, in addition to the City, could have
financial problems leading to requests for additional New York State assistance.
The potential impact on the State of such requests by localities was not
included in the projections of the State's receipts and disbursements in the
State's 1995-96 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by New York State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor or the Legislature to assist Yonkers could result in allocation of
New York State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1993, the total indebtedness
of all localities in New York State other than New York City was approximately
$17.7 billion. A small portion (approximately $105 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
enabling New York State legislation. State law requires the comptroller to
review and make recommendations concerning the budgets of those local government
units other than New York City authorized by State law to issue debt to finance
deficits during the period that such deficit financing is outstanding. Fifteen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1993.
From time to time, federal expenditure reductions could
reduce, or in some cases eliminate, federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities. If New York State, New York City or any of the Authorities
were to suffer serious financial difficulties jeopardizing their respective
access to the public credit markets, the marketability of notes and bonds issued
by localities within New York State could be adversely affected. Localities also
face anticipated and potential problems resulting from certain pending
litigation, judicial decisions and
24
<PAGE>
long-range economic trends. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing New York State assistance in the
future.
25
<PAGE>
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio only, except
for reverse repurchase agreements) and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with
respect to the Municipal Money Market Portfolio, in amounts not in
excess of the lesser of the dollar
26
<PAGE>
amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other
than securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, if immediately after and as a result of
such purchase more than 5% of a Portfolio's total assets would be
invested in the securities of such issuer, or more than 10% of the
outstanding voting securities of such issuer would be owned by the
Portfolio, except that up to 25% of the value of a Portfolio's assets
may be invested without regard to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except
to the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
(7) purchase or sell commodities or commodity
contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that a Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
27
<PAGE>
(10) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(11) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
28
<PAGE>
of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the Municipal
Money Market Portfolio has more than 5% of its total assets invested
in instruments issued by or subject to Puts from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Municipal Money Market Portfolio's total assets.
A "Put" means a right to sell a specified underlying instrument within
a specified period of time and at a specified exercise price that may
be sold, transferred or assigned only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the Fund
nor its investment adviser will review the proceedings relating to the issuance
of Municipal Obligations or the basis for such opinions.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Money Market Portfolio will meet the following limitations on its
investments in addition to the fundamental investment limitations described
above. These limitations may be changed without a vote of shareholders of the
Money Market Portfolio.
1. The Money Market Portfolio will limit its
purchases of the securities of any one issuer, other than issuers of
U.S. Government securities, to 5% of its total assets, except that the
Money Market Portfolio may invest more than 5% of its total assets in
First Tier Securities of one issuer for a period of up to three
business days. "First Tier Securities" include eligible securities
that (i) if rated by more than one NRSRO, are rated (at the time of
purchase) by two or more NRSROs in the highest rating category for
such securities, (ii) if rated by only one NRSRO, are rated by such
NRSRO in its highest rating category for such securities, (iii) have
no short-term rating and are comparable in priority and security to a
class of short-term
29
<PAGE>
obligations of the issuer of such securities that have been rated in
accordance with (i) or (ii) above, or (iv) are Unrated Securities that
are determined to be of comparable quality to such securities.
Purchases of First Tier Securities that come within categories (ii)
and (iv) above will be approved or ratified by the Board of Directors.
2. The Money Market Portfolio will limit its
purchases of Second Tier Securities, which are eligible securities
other than First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its
purchases of Second Tier Securities of one issuer to the greater of 1%
of its total assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations. There is no limit on the
amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is
permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not
30
<PAGE>
(together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such amounts are
qualifying income under Federal income tax provisions applicable to
regulated investment companies.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300 percent for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in
excess of 10% of the value of a Portfolio's total assets at the time
of such borrowing; or purchase portfolio securities while borrowings
in excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
(2) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except
to the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
31
<PAGE>
therein or issued by companies which invest in real estate or
interests therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
(8) make loans except that the Portfolio may
purchase or hold debt obligations in accordance with its investment
objective, policies and limitations and may enter into repurchase
agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
32
<PAGE>
1. The New York Municipal Money Market Portfolio
will not purchase any Put if after the acquisition of the Put the New
York Municipal Money Market Portfolio has more than 5% of its total
assets invested in instruments issued by or subject to Puts from the
same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations
and to the exemption of interest thereon from Federal income tax (and, with
respect to New York Municipal Obligations, to the exemption of interest thereon
from New York State and New York City personal income tax) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
33
<PAGE>
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 Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M.
Warburg, Pincus &
Co., Inc.; Since
1990, Chief
Executive Officer
and since 1991,
Secretary, Counsellors
Securities Inc.;
Officer of various
investment companies
advised by Warburg,
Pincus Counsellors,
Inc.
Robert Sablowsky - 58** Director Since OCTOBER 1996,
110 Wall Street SENIOR VICE PRESIDENT
New York, NY 10005 OF FAHNESTOCK & CO.,
INC. 1985 TO 1996,
Executive Vice
President of Gruntal &
Co., Inc., Director,
Gruntal & Co., Inc.
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.), Mart PMM,
Inc. (formerly
Pennsauken
34
<PAGE>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- --------------------- ------------------ ----------------------
Merchandise Mart,
Inc.) (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 Chairman, Comcast
16th Floor Corporation; Director
Philadelphia, PA 19107-3723 Comcast Cablevision of
Philadelphia (cable
television and
Communications) and
Nextel (Wireless
Communication)
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 Insurance Co.
Edward J. Roach - 72 President and Certified Public
Suite 152 Treasurer Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional
Management
Corporation.
35
<PAGE>
PRINCIPAL OCCUPATION
NAME, ADDRESS AND AGE POSITION WITH FUND DURING PAST FIVE YEARS
- --------------------- ------------------ ----------------------
Morgan R. Jones - 57 Secretary Chairman of the law
firm of 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.
- ----------
* 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 ANY INVESTMENT ADVISER OR SUB-ADVISER
OF THE FUND OR DISTRIBUTOR $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
36
<PAGE>
On October 24, 1990 the Fund adopted, as a participating
employer, the Fund Office Retirement Profit-Sharing Plan and Trust Agreement, a
retirement plan for employees (currently Edward J. Roach) pursuant to which the
Fund will contribute on a monthly basis amounts equal to 10% of the monthly
compensation of each eligible employee. By virtue of the services performed by
PNC Institutional Management Corporation ("PIMC"), the Fund's adviser, PNC Bank,
National Association ("PNC Bank"), the sub-ADVISER to all Portfolios other than
the New York Municipal Money Market Portfolio, which has no sub-ADVISER, and the
Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal Money
Market and New York Municipal Money Market Portfolios and the Fund's transfer
and dividend disbursing agent, and Counsellors Securities Inc. (the
"Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-ADVISER, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,686 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO AND $2,709 IN ADVISORY FEES WITH RESPECT TO THE NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO. DURING THE SAME YEAR, PIMC WAIVED $3,527,715 ADVISORY
FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES
WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES
WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017
OF ADVISORY FEES WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO.
FOR THE YEAR ENDED AUGUST 31, 1995 PIMC received (after waivers) $2,274,697 in
advisory fees with respect to the Money Market Portfolio, $67,752 in advisory
fees with respect to the Municipal Money Market Portfolio, $780,122 in advisory
fees with respect to the Government Obligations Money Market Portfolio and
waived all of
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the investment advisory fees payable to it $187,660 with respect to the New York
Municipal Money Market Portfolio. During the same year PMC waived $2,589,882 of
advisory fees with respect to the Money Market Portfolio $1,041,321 of advisory
fees with respect to the Municipal Money Market Portfolio, $398,363 of advisory
fees with respect to the Government Obligations 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 $7,733 in advisory fees with
respect to the Municipal Money Market Portfolio, $580,435 in advisory fees with
respect to Government Obligations Money market Portfolio and waived all of the
investment advisory fees payable to it of $193,386 with respect to the New York
Municipal Money Market Portfolio under its Advisory Contract with the Fund.
During the same year, PIMC waived $2,255,986 of advisory fees with respect to
the Money Market Portfolio, $1,091,646 of advisory fees with respect to the
Municipal Money Market Portfolio, $461,938 of advisory fees with respect to
Government Obligations Money Market Portfolio.
As required by various state regulations, PIMC will reimburse
the Fund or a Portfolio affected (as applicable) if and to the extent that the
aggregate operating expenses of the Fund or a Portfolio affected exceed
applicable state limits for the fiscal year, to the extent required by such
state regulations. Currently, the most restrictive of such applicable limits is
2.5% of the first $30 million of average annual net assets, 2% of the next $70
million of average annual net assets and 1-1/2% of the remaining average annual
net assets. Certain expenses, such as brokerage commissions, taxes, interest and
extraordinary items, are excluded from this limitation. Whether such expense
limitations apply to the Fund as a whole or to each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting
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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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal
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Money Market Portfolio pursuant to an Administration and Accounting Services
Agreement dated April 21, 1992 (together, the "Administration Agreements"). PFPC
has agreed to furnish to the Fund on behalf of the Municipal Money Market and
New York Municipal Money Market Portfolio statistical and research data,
clerical, accounting, and bookkeeping services, and certain other services
required by the Fund. PFPC has also agreed to prepare and file various reports
with the appropriate regulatory agencies, and prepare materials required by the
SEC or any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Janney Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Janney Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic
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<PAGE>
reports to the Fund's Board of Directors concerning the operations of each
Janney Class. PFPC may, on 30 days' notice to the Fund, assign its duties as
transfer and dividend disbursing agent to any other affiliate of PNC Bank Corp.
For its services to the Fund under the Transfer Agency Agreement, PFPC receives
a fee at the annual rate of $15.00 per account in each Portfolio for orders
which are placed via third parties and relayed electronically to PFPC, and at an
annual rate of $17.00 per account in each Portfolio for all other orders,
exclusive of out-of-pocket expenses and also receives a fee for each redemption
check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements entered into
by the Distributor and the Fund on behalf of each of the Janney Classes,
(collectively, the "Distribution Contracts") and separate Plans of Distribution
for each of the Janney Classes (collectively, the "Plans"), all of which were
adopted by the Fund in the manner prescribed by Rule 12b-1 under the 1940 Act,
the Distributor will use its best efforts to distribute shares of each of the
Janney Classes. As compensation for its distribution services, the Distributor
will receive, pursuant to the terms of the Distribution Contracts, a
distribution fee, to be calculated daily and paid monthly, at the annual rate
set forth in the Prospectus. The Distributor currently proposes to reallow up to
all of its distribution payments to broker/dealers for selling shares of each of
the Portfolios based on a percentage of the amounts invested by their customers.
Each of the Plans relating to the Janney Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Janney Class of
the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market
41
<PAGE>
Portfolios was approved by the sole shareholder of each Janney Class on November
5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Janney Class under the Plan shall not be materially increased
without the affirmative vote of the holders of a majority of the Fund's shares
in the affected Janney Class; and (4) while the Plan remains in effect, the
selection and nomination of the Fund's directors who are not "interested
persons" of the Fund (as defined in the 1940 Act) shall be committed to the
discretion of the directors who are not interested persons of the Fund.
During the year or period ended August 31, 1996, the Fund paid
distribution fees to the Fund's Distributor under the Plans for the Janney
Classes of each of the Money Market Portfolio, the Municipal Money Market
Portfolio, the Government Obligations Money Market Portfolio and the New York
Municipal Money Market Portfolio in the aggregate amounts of $3,161,043,
$564,754, $1,869,227 AND $97,465, respectively. Of those amounts $53,509,
$9,413, $31,154, AND $1,644, respectively, 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 year, the Distributor waived no distribution fees for any of the
Janney Classes of the Money Market Portfolio, the Municipal Market Portfolio,
the Government Obligations Money Market Portfolio AND the New York Municipal
Money Market Portfolio. The Fund believes that such Plans may benefit the Fund
by increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, had an indirect interest in the operation of
the Plans 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
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
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may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a
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Portfolio is concerned, in other cases it is believed to be beneficial to a
Portfolio. A Portfolio will not purchase securities during the existence of any
underwriting or selling group relating to such security of which PIMC or PNC
Bank or any affiliated person (as defined in the 1940 Act) thereof is a member
except pursuant to procedures adopted by the Fund's Board of Directors pursuant
to Rule 10f-3 under the 1940 Act. Among other things, these procedures, which
will be reviewed by the Fund's directors annually, require that the commission
paid in connection with such a purchase be reasonable and fair, that the
purchase be at not more than the public offering price prior to the end of the
first business day after the date of the public offer, and that PIMC and PNC
Bank not participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE IS
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closed WEEKENDS AND 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 AS THE
NYSE (EXCEPT CHRISTMAS DAY (OBSERVED)) AS WELL AS MARTIN LUTHER KIND, JR. DAY,
COLUMBUS DAY AND VETERANS DAY.
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the
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securities being valued at a price different from the price that would have been
determined had the matrix or formula method not been used. All cash, receivables
and current payables are carried on the Fund's books at their face value. Other
assets, if any, are valued at fair value as determined in good faith by the
Fund's Board of Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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 ended August 31, 1996
for the Janney Classes of each of the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio was 4.48%, 2.85%, 4.40% and 2.61%,
respectively. the effective yield for the same period for the same Classes was
4.58%, 2.89%, 4.50%, AND 2.64%, respectively. The tax equivalent yield for the
same period for the Janney Class of the Municipal Money Market Portfolio was
3.96% (assuming an income tax rate of 28%). the tax equivalent yield for the
same period for the Janney Class of the New York Municipal Money Market
Portfolio was 4.21% (assuming a combined total New York City (8%), New York
State (2%) and Federal (28%) income tax rate of 38%).
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
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financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a widely-recognized independent
service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions
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previously made for the purpose of avoiding liability for Federal excise tax
(discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market
48
<PAGE>
Portfolio, Government Obligations Money Market Portfolio and New York Municipal
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 any of them to fail to
satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
49
<PAGE>
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a Portfolio
from investments in debt securities (other than interest on tax-exempt Municipal
Obligations that is distributed as exempt interest dividends) and any net
realized short-term capital gains distributed by a Portfolio will be taxable to
shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
50
<PAGE>
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, no Portfolio anticipates
incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
51
<PAGE>
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
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, 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 Common
Stock, 100 million shares are classified as Class EE Common Stock, 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
52
<PAGE>
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 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),100 MILLION
SHARES ARE CLASSIFIED AS CLASS Alpha 4 Common Stock (N.Y. Money), 1 million
shares are classified as Class Beta 1 Common Stock (Money), 1 million shares are
classified as Class Beta 2 Common Stock (Municipal Money), 1 million shares are
classified as Class Beta 3 Common Stock (U.S. Government Money), 1 million
shares are classified as Class Beta 4 Common Stock (N.Y. Money), 1 million
shares are classified as Gamma 1 Common Stock (Money), 1 million shares are
classified as Gamma 2 Common Stock (Municipal Money), 1 million shares are
classified as Gamma 3 Common Stock (U.S. Government Money), 1 million shares are
classified as Gamma 4 Common Stock (N.Y. Money), 1 million shares are classified
as Delta 1 Common Stock (Money), 1 million shares are classified as Delta 2
Common Stock (Municipal Money), 1 million shares are classified as Delta 3
Common Stock (U.S. Government Money), 1 million shares are classified as Delta 4
Common Stock (N.Y. Money), 1 million shares are classified as Epsilon 1 Common
Stock (Money), 1 million shares are classified as Epsilon 2 Common Stock
(Municipal Money), 1 million shares are classified as Epsilon 3 Common Stock
(U.S. Government Money), 1 million shares are classified as Epsilon 4 Common
Stock (N.Y. Money), 1 million shares are classified as Zeta 1 Common Stock
(Money), 1 million shares are classified as Zeta 2 Common Stock (Municipal
Money), 1 million shares are classified as Zeta 3 Common Stock (U.S. Government
Money), 1 million shares are classified as Zeta 4 Common Stock (N.Y. Money), 1
million shares are classified as Eta 1 Common Stock (Money), 1 million shares
are classified as Eta 2 Common Stock (Municipal Money), 1 million shares are
classified as Eta 3 Common Stock (U.S. Government Money), 1 million shares are
classified as Eta 4 Common Stock (N.Y. Money), 1 million shares are classified
as Theta 1 Common Stock (Money), 1 million shares are classified as Theta 2
Common Stock (Municipal Money), 1 million shares are classified as Theta 3
Common Stock (U.S. Government Money), and 1 million shares are classified as
Theta 4 Common Stock (N.Y. Money). Shares of Class JANNEY MONTGOMERY SCOTT MONEY
MARKET Common Stock, Class JANNEY MONTGOMERY SCOTT MUNICIPAL MONEY MARKET Common
Stock, Class JANNEY MONTGOMERY SCOTT GOVERNMENT OBLIGATIONS MONEY MARKET Common
Stock and Class JANNEY MONTGOMERY SCOTT NEW YORK MUNICIPAL MONEY
53
<PAGE>
MARKET Common Stock constitute the Janney Classes. Under the Fund's charter the
Board of Directors has the power to classify or reclassify any unissued shares
of Common Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN
separate "families": the RBB Family, the Cash Preservation Family, the Sansom
Street Family, the Bedford Family, the Bradford Family, the BEA Family, the
Janney Montgomery Scott Money Funds, THE N/I FAMILY, THE BOSTON PARTNER 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 Cash Preservation Family represents
interests in the Money Market and Municipal Money Market Portfolios; the Sansom
Street Family represents interests in the Money Market, Municipal Money Market
and Government Obligations Money Market Portfolios; Bedford Family AND THE
JANNEY MONTGOMERY SCOTT MONEY FAMILY REPRESENT interests in the Money Market,
Municipal Money Market, Government Obligations 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 INTERESTS IN ONE NON-MARKET PORTFOLIOS, and THE Beta,
Gamma, Delta, Epsilon, Zeta, Eta and Theta Families (collectively, the
"Additional Families") represent interests in the Money Market, Municipal Money
Market, Government Obligations Money Market and New York Municipal Money Market
Portfolios.
The Fund 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
54
<PAGE>
an investment advisory agreement or any change in a fundamental investment
policy would be effectively acted upon with respect to a portfolio only if
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent public accountants, the approval of principal
underwriting contracts and the election of directors are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 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 its 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.
55
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
RBB Money Market Luanne M. Garvey and Robert J. Garvey 11.2
Portfolio 2729 Woodland Avenue
(Class E) Trooper, PA 19403
HAROLD T. Erfer 12.2
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution 15.8
Account
4943 King Arthur Drive
Erie, PA 16506
JOHN Robert Estrada and 22.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
ERIC Levine and Linda & Howard Levine 27.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal William B. Pettus Trust 11.4
Money 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 Jewish Family and Children's 56.8
Money MarketPortfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust 12.4
under The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 7.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
CASH Preservation Kenneth Farwell and Valerie 10.8
Municipal Money Farwell Jt. Ten
Portfolio 3854 Sullivan
(Class H) St. Louis, MO 63107
GARY L. LANGE and 15.2
SUSAN D. LANGE JTTEN
13 MUIRFIELD CT NORTH
ST. CHARLES, MO 63309
ANDREW DIEDERICH AND DORIS DIEDERICH 5.9
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR DTD 8/12/91
40 PLAZA SQUARE 14.8
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 7.5
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.1
2757 GEYER
ST. LOUIS, MO
SANSOM Street Money Wasner & Co. 20.1
Market Portfolio FAO Paine Webber and Managed
(Class I) Assets Sundry Holdings
Attn: Joe Domizio
200 Stevens Drive
Lester, PA 19113
SAXON and Co. 73.3
FBO Paine Webber
P.O. Box 7780 1888
Philadelphia, PA 19182
ROBERTSON Stephens & Co. 6.5
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 (CLASS R) 330 COMMERCE STREET
NASHVILLE, TN 37201
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
BRADFORD GOVERNMENT J.C. BRADFORD & CO. 100
OBLIGATIONS MONEY 330 COMMERCE STREET
(CLASS S) NASHVILLE, TN 37201
BEA INTERNATIONAL BLUE CROSS & BLUE SHIELD 5.1
EQUITY OF MASSACHUSETTS INC.
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD TEMPLE Inland Master Retirement Trust 10.2
Portfolio 303 South Temple Drive
(Class U) Diboll, TX 75941
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DROVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Wachovia Bank North Carolina Trust 15.7
Equity Portfolio for Carolina PowerLight Co.
(Class V) Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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 RETIREMENT 10.8
SYSTEM
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
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
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<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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
CITIBANK NA
TRST CS FIRST BOSTON CORP EMP S/P 12.8
ATTN: SHEILA ADAMS
111 WALL STREET, 20TH FLOOR Z 1
NEW YORK, NY 10043
BEA Global Fixed SunkistsMaster Trust 36.0
Income 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 William A. Marquard 37.4
Fund Portfolio 2199 Maysville Rd.
(Class AA) Carlisle, KY 40311
60
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
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 5.7
SLOVES
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
N/I MICRO CAP Fund CHARLES SCHWAB & CO. Inc. 12.8
(CLASS FF) SPECIAL CUSTODY ACCOUNT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMERS
Attn: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94101
CHASE MANHATTAN BANK 30.5
TRST COLLINS GROUP TRUST
940 NEWPORT CENTER DRIVE
NEWPORT BEACH, CA 92660
CURRIE & CO. 6.4
C/O FIDUCIARY TRUST CO. INTL
P. O. BOX 3199
CHURCH STREET STATION
New York, NY 10008
BRUCE FEIZER 5.3
TRST JEF MEMORIAL RANCH ACCOUNT
P.O. Box 117
VICKSBURG, MI 49097
N/I GROWTH FUND CHARLES SCHWAB & CO. INC. 20.7
(CLASS GG) SPECIAL CUSTODY ACCOUNT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94101
61
<PAGE>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
U S EQUITY INVESTMENT PORTFOLIO LP
C/O ASSET MANAGEMENT ADVISORS INC.
1001 N. US HWY
SUITE 800 22.7
JUPITER, FL 33447
BANK OF NEW YORK 10.2
TRST SUNKIST GROWERS INC.
14130 RIVERSIDE DRIVE
SHERMAN OAKS, CA 91423-2392
N/I GROWTH AND VALUE CHARLES SCHWAB & CO. INC. 31.6
FUND SPECIAL CUSTODY ACCOUNT FOR THE
(CLASS HH) EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY MONTGOMERY SCOTT Janney Montgomery Scott 100
MONEY MARKET PORTFOLIO 1801 Market Street
(CLASS JANNEY Philadelphia, PA 19103-1675
MONEY 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 801 Market Street
Money Market Portfolio Philadelphia, PA 19103-1675
(Class JANNEY GOVERNMENT
OBLIGATI1ONS 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.
62
<PAGE>
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.
63
<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.
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.
A-1
<PAGE>
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
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -------------
CERTIFICATES OF DEPOSIT--12.8%
BANK NOTES--4.6%
First National Bank of Boston
5.500% 01/13/97 ........................ $50,000 $ 50,000,000
Mellon Bank
5.540% 02/07/97 ........................ 50,000 50,000,000
------------
100,000,000
------------
YANKEE DOLLAR CERTIFICATES OF DEPOSIT--8.2%
Bank of Tokyo-Mitsubishi
5.600% 11/04/96 ........................ 25,000 25,000,000
Banque Nationale de Paris
5.430% 09/30/96 ........................ 50,000 50,000,392
Swedbank
5.530% 09/12/96 ........................ 30,000 30,000,090
5.440% 11/06/96 ........................ 75,000 75,001,356
------------
180,001,838
------------
TOTAL CERTIFICATES OF DEPOSIT
(Cost $280,001,838) ................ 280,001,838
------------
COMMERCIAL PAPER--56.1%
ASSET BACKED SECURITIES--5.8%
Corporate Receivables Corp.
5.350% 11/21/96 ........................ 25,000 24,699,063
5.400% 01/15/97 ........................ 25,800 25,273,680
Cxc, Inc.
5.320% 11/20/96 ........................ 30,000 29,645,333
Sigma Finance, Inc.
5.420% 02/20/97 ........................ 50,000 48,705,222
------------
128,323,298
------------
BANKS--2.3%
Chase Manhattan Corp.
5.330% 01/10/97 ........................ 25,000 24,515,118
National City Corp.
5.270% 09/11/96 ........................ 25,000 24,963,403
------------
49,478,521
------------
PAR
(000) VALUE
------- -------------
CIGARETTES--3.0%
American Brands, Inc.
5.300% 12/12/96 ..................... $21,000 $ 20,684,650
5.290% 12/13/96 ..................... 25,000 24,621,618
5.480% 01/06/97 ..................... 20,000 19,613,356
------------
64,919,624
------------
FINANCE SERVICES--1.7%
Countrywide Funding Corp.
5.450% 10/18/96 ..................... 38,000 37,729,619
------------
GLASS, GLASSWARE, PRESSED OR BLOWN--2.3%
Newell Co.
5.320% 09/12/96 ..................... 50,000 49,918,722
------------
PERSONAL CREDIT INSTITUTIONS--10.7%
BMW US Capital Corp.
5.340% 09/09/96 ..................... 33,196 33,156,607
5.300% 09/16/96 ..................... 50,000 49,889,583
Ford Motor Credit Corp.
5.430% 10/22/96 ..................... 50,000 49,615,375
5.400% 12/12/96 ..................... 50,000 49,235,000
General Motors Acceptance Corp.
5.580% 12/26/96 ..................... 30,000 29,460,600
5.460% 02/12/97 ..................... 25,000 24,378,167
------------
235,735,332
------------
PETROLEUM REFINING--1.1%
Repsol Int'l Finance B.V.
5.370% 12/27/96 ..................... 25,000 24,563,688
------------
PHARMACEUTICAL PREPARATIONS--2.7%
American Home Products Corp.
5.250% 09/03/96 ..................... 60,000 59,982,500
------------
SEARCH, DETECTION, NAVIGATION,
GUIDANCE AERONAUTIC SYSTEMS--4.5%
Raytheon Co.
5.280% 09/17/96 ..................... 100,000 99,765,333
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
-------- --------------
SECURITY BROKERS & DEALERS--12.9%
Lehman Brothers Holdings Inc.
5.500% 09/12/96 .......................... $ 55,000 $ 54,907,569
Merrill Lynch & Co. Canandian DCP
5.500% 11/18/96 .......................... 50,000 49,404,167
Morgan Stanley Group, Inc.
5.400% 09/23/96 .......................... 25,000 24,917,500
5.300% 10/21/96 .......................... 50,000 49,631,945
5.310% 12/13/96 .......................... 30,000 29,544,225
Nomura Holding America, Inc.
5.510% 10/24/96 .......................... 25,000 24,797,201
5.380% 11/14/96 .......................... 50,000 49,447,056
--------------
282,649,663
--------------
SHORT-TERM BUSINESS CREDIT INSTITUTIONS--9.1%
American Express Credit Corp.
5.280% 09/05/96 .......................... 100,000 99,941,333
Sears Roebuck Acceptance Corp.
5.310% 09/04/96 .......................... 50,000 49,977,875
5.480% 10/31/96 .......................... 50,000 49,543,333
--------------
199,462,541
--------------
TOTAL COMMERCIAL PAPER
(Cost $1,232,528,841) ................ 1,232,528,841
--------------
MUNICIPAL BONDS--5.4%
CALIFORNIA--0.9%
San Bernardino County California
Certificate of Participation County
Center Refinancing Project,
Series 1995 (LOC Canadian
Imperial Bank of Commerce)(DOUBLE DAGGER)
5.650% 09/07/96 .......................... 7,800 7,800,000
Adventist Health Systems West
Series 1988 (LOC-First Interstate
Bank of California)(DAGGER)
3.750% 09/04/96 .......................... 12,925 12,925,000
--------------
20,725,000
--------------
FLORIDA--0.1%
Coral Springs, Florida Industrial
Development Revenue
(LOC Sun Bank, N.A.)(DOUBLE DAGGER)
5.650% 09/05/96 .......................... 2,900 2,900,000
--------------
PAR
(000) VALUE
------- -----------
GEORGIA--0.4%
De Kalb County Georgia Development
Authority (Emory U.)(DOUBLE DAGGER)
5.450% 09/04/96 ...................... $10,100 $10,100,000
-----------
ILLINOIS--0.8%
Barton Healthcare Taxable Revenue
Bonds Series 1995 DN (LOC-
American Nation Bank)(DAGGER)
5.550% 09/04/96 ...................... 12,455 12,455,000
Baylis Group Partnership Weekly
Demand Taxable Bond Series 1992
(LOC-Societe Generale)(DOUBLE DAGGER)
5.650% 09/04/96 ...................... 600 600,000
Illinois Health Facilities Authority
Convertible/ VRDN RB
(The Streeterville CORP Project)
Series 1993-B (LOC-First National
Bank of Chicago)(DOUBLE DAGGER)
5.550% 09/04/96 ...................... 4,400 4,400,000
-----------
17,455,000
-----------
KENTUCKY--0.2%
Boone County Taxable IDR Refunding
Bonds (Square D Company Project)
Series 1994-B (LOC-Societe Generale)
VRDN(DAGGER)
5.550% 09/04/96 ...................... 4,200 4,200,000
-----------
MINNESOTA--0.2%
Fairview Hospital And Healthcare Services
Taxable ADJ Convertible Extendable
Securities Series 1994
(MBIA Insurance) VRDN(DAGGER)
5.550% 09/05/96 ...................... 5,100 5,100,000
-----------
MISSISSIPPI--0.9%
Hinds County, Mississippi
(LOC-RaboBank Nederland)
IDRB VRDN(DAGGER)
5.450% 09/04/96 ...................... 1,400 1,400,000
5.450% 09/04/96 ...................... 2,155 2,155,000
See Accompanying Notes to Financial Statements.
4
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MISSISSIPPI--(CONTINUED)
Mississippi Business Finance Corp.
Taxable IDRB (Bryan Foods, Inc.
Project) Series 1994 (Sara Lee
Corporation Guaranty)
(LOC-Sun Bank, N.A.) VRDN(DAGGER)
5.550% 09/04/96 ..................... $14,000 $ 14,000,000
Mississippi Business Finance Corp.
Taxable IDRB VRDN(DAGGER)
5.450% 09/07/96 ..................... 3,200 3,200,000
------------
20,755,000
------------
NEW YORK--0.6%
Health Insurance Plan of Greater NY
adj/Convertible Extendable Securities
Series 1990 (LOC-Morgan
Guaranty Trust Company) VRDN(DAGGER)
5.500% 09/04/96 ..................... 12,300 12,300,000
------------
NORTH CAROLINA--0.6%
Community Health Systems, Inc.
Taxable (LOC-First Union National
Bank of North Carolina)
Series 1991-A(DAGGER)
5.700% 09/04/96 ..................... 400 400,000
City of Ashville North Carolina
(LOC-Wachovia Bank of N.C.)
Tax Corp.(DAGGER)
5.400% 09/04/96 ..................... 12,700 12,700,000
------------
13,100,000
------------
TEXAS--0.7%
South Central Texas Industrial
Development Corp. Taxable IDR
Bonds (Rohr Industries Project
Series 1990 (LOC-Citibank N.A.)
VRDN(DAGGER)
5.550% 09/04/96 ..................... 14,800 14,800,000
------------
TOTAL MUNICIPAL BONDS
(Cost $121,435,000) ............. 121,435,000
------------
PAR
(000) VALUE
------- ------------
REVENUE ANTICIPATION NOTES--0.3%
MANDATORY PUT BONDS--0.3%
Bremen, Inc. Tax Adjustable Notes
(LOC-Society National Bank)
5.500% 09/05/96 ........................ $ 6,000 $ 6,000,000
------------
TOTAL REVENUE ANTICIPATION NOTES
(Cost $6,000,000) .................. 6,000,000
------------
CORPORATE OBLIGATIONS--10.2%
BANKS--2.3%
Norwest Corp.(DAGGER)
5.398% 09/28/96 ........................ 50,000 50,000,000
------------
PERSONAL CREDIT INSTITUTIONS--0.9%
General Motors Acceptance Corp.
5.410% 09/01/96(DAGGER) ................ 5,000 4,998,894
General Motors Acceptance Corp.
7.900% 03/12/97 ........................ 14,750 14,950,198
------------
19,949,092
------------
SECURITY BROKERS & DEALERS--7.0%
Bear Stearns & Co., Inc.
5.290% 03/11/97 ........................ 20,000 20,000,000
Goldman Sachs Group, LP
5.711% 11/06/96(DAGGER) ................ 53,000 53,000,000
Lehman Brothers Holdings Inc.
5.600% 09/05/96(DAGGER) ................ 50,000 50,000,000
Merrill Lynch & Co.
5.000% 12/15/96 ........................ 5,000 4,991,584
5.120% 02/27/97 ........................ 25,000 24,997,555
------------
152,989,139
------------
TOTAL CORPORATE OBLIGATIONS
(Cost $222,938,231) ................ 222,938,231
------------
AGENCY OBLIGATIONS--2.5%
Student Loan Marketing Association(DAGGER)
5.390% 09/03/96 ........................ 25,000 24,994,375
5.410% 09/03/96 ........................ 10,000 10,000,000
5.420% 09/03/96 ........................ 20,000 20,000,000
------------
TOTAL AGENCY OBLIGATIONS
(Cost $54,994,375) ................. 54,994,375
------------
See Accompanying Notes to Financial Statements.
5
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
PAR
(000) VALUE
------- --------------
TIME DEPOSITS--12.6%
Bank of Tokyo-Mitsubishi
5.375% 09/03/96 .......................... $76,800 $ 76,800,000
Dai-ichi Kangyo Bank
5.406% 09/05/96 .......................... 50,000 50,000,000
First National Bank of Boston
5.344% 09/05/96 .......................... 50,000 50,000,000
First Union National Bank of NC
5.250% 09/03/96 .......................... 100,000 100,000,000
--------------
TOTAL TIME DEPOSITS
(Cost $276,800,000) .................. 276,800,000
--------------
TOTAL INVESTMENTS AT VALUE--99.9%
(Cost $2,194,698,285*) ................... 2,194,698,285
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.1% ..................... 1,125,153
--------------
NET ASSETS (Applicable to
1,109,351,734 Bedford shares,
202,360 Cash Preservation shares,
561,873,247 Janney Montgomery
Scott shares, 61,412 RBB shares,
524,367,399 Sansom Street shares
and 800 other shares)--100.0% ............ $2,195,823,438
==============
NET ASSET VALUE, offering and
redemption price per share
($2,195,823,438 (DIVIDE) 2,195,856,952) .. $1.00
=====
* Also cost for Federal income tax purposes
(DAGGER) Variable Rate Obigations -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the
next interest rate readjustment date or the date the principal amount
shown can be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
INVESTMENT ABBREVIATIONS
VRDN ............................Variable Rate Demand Note
LOC ......................................Letter of Credit
IDR.........................Industrial Development Revenue
See Accompanying Notes to Financial Statements.
6
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
7
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
8
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
10
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
11
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
12
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
13
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
14
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
-------- ------------
AGENCY OBLIGATIONS--53.8%
FEDERAL FARM CREDIT BANK--8.1%
5.120% 09/04/96(DAGGER) ..................... $ 15,000 $ 14,998,280
5.400% 04/01/97 ............................. 30,000 29,977,099
------------
44,975,379
------------
FEDERAL HOME LOAN BANK--8.1%
5.277% 09/02/96(DAGGER) ..................... 20,000 19,998,784
5.238% 09/20/96(DAGGER) ..................... 15,000 14,999,434
5.560% 10/25/96 ............................. 10,000 9,997,291
------------
44,995,509
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.6%
5.370% 09/03/96(DAGGER) ..................... 10,000 10,000,000
5.410% 09/03/96(DAGGER) ..................... 10,000 9,994,465
5.465% 09/03/96(DAGGER) ..................... 10,000 9,999,787
5.348% 09/06/96(DAGGER) ..................... 20,000 19,992,305
5.337% 09/17/96(DAGGER) ..................... 20,000 19,990,167
5.310% 10/18/96 ............................. 15,000 14,996,237
5.320% 11/21/96(DAGGER) ..................... 25,000 24,992,910
5.270% 11/26/96 ............................. 20,000 19,748,211
5.530% 01/10/97 ............................. 15,000 14,698,154
5.240% 01/15/97 ............................. 15,000 14,703,067
------------
159,115,303
------------
STUDENT LOAN MARKETING ASSOCIATION(DAGGER)--9.0%
5.400% 09/03/96 ............................. 9,000 8,998,786
5.410% 09/03/96 ............................. 5,000 5,000,000
5.420% 09/03/96 ............................. 5,000 4,999,414
5.460% 09/03/96 ............................. 15,000 14,996,128
5.585% 09/03/96 ............................. 3,850 3,851,055
5.610% 09/03/96 ............................. 12,100 12,105,327
------------
49,950,710
------------
TOTAL AGENCY OBLIGATIONS
(Cost $299,036,901) ..................... 299,036,901
------------
PAR
(000) VALUE
------- ------------
U. S. TREASURY OBLIGATIONS--7.2%
U.S. TREASURY NOTES--7.2%
6.875% 02/28/97 ...................... $20,000 $ 20,159,607
6.875% 03/31/97 ...................... 10,000 10,075,608
6.500% 04/30/97 ...................... 10,000 10,050,993
------------
TOTAL U. S. TREASURY
OBLIGATIONS
(Cost $40,286,208) ............... 40,286,208
------------
REPURCHASE AGREEMENTS--38.5%
Aubrey G. Lanston & Co. Inc.
5.200% 09/03/96 ...................... 92,000 92,000,000
(Agreement dated 08/30/96 to be
repurchased at $92,053,156,
collateralized by $44,562,500
U.S. Treasury Bond 6.25% due
08/15/23 and collateralized by
$47,439,700 U.S. Treasury
Notes 7.75% to 8.50% due
12/31/99 to 11/15/00. Market
value of collateral is $92,002,200.)
Donaldson, Lufkin & Jenrette
5.310% 09/03/96 ...................... 102,200 102,200,000
(Agreement dated 08/30/96 to be
repurchased at $102,260,298,
collateralized by $110,810,000
Federal Home Loan Mortgage
Corp. due 08/15/26
Market value of collateral is
$105,270,608.)
Morgan Stanley & Co.
5.270% 09/20/96 ...................... 20,000 20,000,000
(Agreement dated 08/22/96 to be
repurchased at 20,084,906,
collateralized by $25,860,948
Federal Home Loan Mortgage
Corp. 0% to 8.00% due 12/01/09 to
06/15/35. Market value of collateral
is $20,405,022.)
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,200,000) .............. 214,200,000
------------
See Accompanying Notes to Financial Statements.
15
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.5%
(COST $553,523,109*).................. $553,523,109
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5%.................. 3,023,896
------------
NET ASSETS (Applicable to
192,603,016 Bedford shares,
57,191,735 Bradford shares,
306,763,729 Janney Montgomery
Scott shares and 800 other
shares)--100%......................... $556,547,005
============
NET ASSET VALUE, offering and
redemption price per share
($556,547,005 (DIVIDE) 556,559,280)... $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Obligations -- The interest rate is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount shown can be
recovered through demand.
See Accompanying Notes to Financial Statements.
16
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
MUNICIPAL BONDS--99.7%
NEW YORK--96.5%
Chautauqua County IDA (The Red Wing
Company, Inc.) Series 1985 DN /
(Wachovia LOC)(DAGGER)
3.400% 09/05/96 ............................ $2,000 $2,000,000
City of New York Eagle Tax Exempt
Bonds DN [SP1+](DAGGER)
3.560% 09/05/96 ............................ 1,000 1,000,000
City of New York GO Bonds DN
Series D / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 1,200 1,200,000
City of New York Housing Development
Corp. (Parkgate Tower) Resolution 1
DN Series 1995 (Citibank LOC)
[A-1, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 2,155 2,155,000
Hempstead USFD TAN Series 1996
4.125% 06/30/97 ............................ 3,000 3,005,366
Lancaster Central School District TAN
Series 1996
4.250% 06/27/97 ............................ 2,000 2,005,504
Metropolitan Transportation Authority
Commuter Facility Series 1991 DN /
(Multiple Credit Enhancements LOC)
[A-1, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 300 300,000
Montgomery Town IDA DN (Service
Merchandise Co. Project) / (Canadian
Imperial Bank of Commerce LOC) [A-1](DAGGER)
3.700% 09/16/96 ............................ 1,300 1,300,000
New York GO Tax Exempt Adjustable
Rate Bonds Series 1996 J TECP /
(Commerce Bank LOC) [A-1+, MIG]
3.500% 09/13/96 ............................ 2,000 2,000,000
New York City GO Bonds DN /
(Mitsubishi Bank LOC)
[A-1+0, VMIG-1](DAGGER)
3.400% 09/07/96 ............................ 1,000 1,000,000
New York City GO Bonds Fiscal 1995
Series F-7 DN / (Union Bank of
Switzerland LOC) [A-1+, P-1](DAGGER)
3.400% 09/07/96 ............................ 200 200,000
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York City GO 1994 H-3 TECP /
(Banque Paribas LOC) [A-1,
VMIG-1](DAGGER)
3.750% 09/05/96 ............................ $ 1,000 $1,000,000
New York City GO Series 1995
F-4 DN / (Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.400% 09/07/96 ............................ 2,100 2,100,000
New York City GO Series 1994 B DN /
(Morgan Guaranty LOC) [A-1,
VMIG-1](DAGGER)
4.000% 09/03/96 ............................ 400 400,000
New York City GO Series B-9 TECP /
(Chemical Bank LOC) [A-1, VMIG-1]
3.600% 10/11/96 ............................ 1,100 1,100,000
New York City Housing Development
Corp. Multi-Family Mortgage RB
(York Avenue Development Project)
Series 1994 A DN / (Chemical Bank
LOC) [A-1](DAGGER)
3.500% 09/07/96 ............................ 3,400 3,400,000
New York City IDA (Laguardia Airport
Project) DN / (Banque Indosuez LOC)
[A-1](DAGGER)
3.300% 09/07/96 ............................ 1,200 1,200,000
New York City IDA RB DN (Field Hotel
Project) (JFK Airport) / (Banque
Indosuez LOC) [A-1, VMIG-1](DAGGER)
3.300% 09/07/96 ............................ 600 600,000
New York City IDA RB (Japan Airlines Co.)
DN / (Morgan Guaranty LOC) [A-1+](DAGGER)
3.900% 09/03/96 ............................ 300 300,000
New York City IDA RB DN Series V
(Premier Sleep Project) /
(ABM-AMRO Bank LOC)
[VMIG-1](DAGGER)
3.350% 09/07/96 ............................ 1,000 1,000,000
New York City IDA RB DN Series X
(Spreading Machine Exchange
Project) / (ABM-AMRO Bank LOC)
[P-1](DAGGER)
3.350% 09/07/96 ............................ 750 750,000
New York City Municipal Water Authority
DN / (FGIC Insurance) [A-1+, VMIG-1](DAGGER)
3.800% 09/01/96 ............................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
17
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York State Dormitory Authority
Memorial Sloan-KetteringCancer
Center RB 1989B TECP (Chemical
Bank LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.600% 10/25/96 ......................... $ 2,450 $2,450,000
New York City Museum of Broadcasting
DN Series 1989 / (Sumitomo Bank
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 1,300 1,300,000
New York Local Govt. Assistance Corp.
RB DN / (Society General LOC)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 1,000 1,000,000
New York Local Govt. Assistance Corp.
RB DN / (Canadian Imperial Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 3,500 3,500,000
New York State Dormitory Authority
RB MB (Beverwyck Inc.) / (Banque
Paribas LOC) [A-2, VMIG-1](DAGGER)
3.400% 09/04/96 ......................... 1,040 1,040,000
New York State Dormitory Authority
RB DN (The Metropolitan Museum of
Art Project) [SP-1+, VMIG-1](DAGGER)
3.100% 09/04/96 ......................... 4,400 4,400,000
New York State Energy Research &
Development (Niagara Mohawk)
Series 1988 A DN / (Morgan
Guaranty LOC)(DAGGER)
4.050% 09/01/96 ......................... 700 700,000
New York State Energy Research &
Development Authority Electric
Facilities RB 1995 Series A DN (Long
Island Lighting Co. Project) / (Union
Bank of Switzerland LOC) [VMIG-1](DAGGER)
3.250% 09/07/96 ......................... 2,000 2,000,000
New York State Energy Research &
Development Authority PCR DN
(Central-Hudson Gas and Electric
Corp.) Series 1985 A / (Morgan
Guaranty LOC) [P-1](DAGGER)
3.150% 09/07/96 ......................... 1,700 1,700,000
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York State Energy Research &
Development Authority PCR RB DN
(Rochester Gas & Electric Project) /
(Credit Suisse LOC) [P-1](DAGGER)
3.550% 09/07/96 .......................... $ 3,500 $3,500,000
New York State Energy Research &
Development Authority PCR RB MB
(Long Island Lighting Co. Project)/
(Deutshe Bank LOC) [VMIG-1](DOUBLE DAGGER)
3.250% 03/01/97 .......................... 1,500 1,500,000
New York State Energy Research &
Development Authority Series 1987
B PCR (Niagara Mohawk) DN /
(Morgan Guaranty LOC) [A-1+](DAGGER)
4.050% 09/01/96 .......................... 300 300,000
New York State Energy Research &
Development Electric Facilities
RB DN 1993 Series B (Long Island
Lighting Co. Project) / (Toronto
Dominion LOC) [VMIG-1](DAGGER)
3.250% 09/07/96 .......................... 500 500,000
New York State Energy Research &
Development Authority DN
Series 1985 A (Niagara Mohawk) /
(Toronto Dominion LOC) [A-1](DAGGER)
3.950% 09/01/96 .......................... 1,100 1,100,000
New York State GO TECP
Series S [A-1, P-1]
3.550% 10/09/96 .......................... 3,000 3,000,000
New York State Housing Finance
Agency (Normandie Court I Project)
Series 1991 DN / (Society General
LOC) [A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 .......................... 1,100 1,100,000
New York State Housing Finance
Agency DN Series A (Mount Sinai
School of Medicine) / (Sanwa Bank
LOC) [VMIG-1](DAGGER)
3.650% 09/04/96 .......................... 3,800 3,800,000
New York State Housing Finance Agency
Multi-Family Mortgage RB DN (Pleasant
Creek Meadows Project) /
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 .......................... 400 400,000
See Accompanying Notes to Financial Statements.
18
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
NEW YORK--(CONTINUED)
New York State Housing Finance Agency
Sloan Kettering 1985 A DN / (Morgan
Guaranty LOC) [A-1+](DAGGER)
3.250% 09/07/96 .......................... $ 500 $ 500,000
New York State Job Development
Authority DN Series 1984 D1 to D9 /
(Sumitomo Bank LOC) [A-1+,
VMIG-1](DAGGER)
3.700% 09/03/96 .......................... 65 65,000
New York State Job Development
Authority DN Series 1989 B1 To
B21 [VMIG-1](DAGGER)
3.850% 09/01/96 .......................... 800 800,000
New York State Job Development
Authority DN Special Purpose Bonds
Series 1984 G1 to G33 / (Sumitomo
Bank LOC) [A-1+, VMIG-1](DAGGER)
3.700% 09/03/96 .......................... 145 145,000
New York State Job Development
Authority DN Special Purpose
Series 1986 A1 to A14 / (Sumitomo
Bank LOC) [A-1+, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 500 500,000
New York State Job Development
DN Special Purpose Series C /
(Sumitomo Bank LOC) [A-1+, VMIG-1](DAGGER)
3.700% 09/03/96 .......................... 880 880,000
New York State Medical Care Facility
Financial Agency (Lenox Hill Hospital
Project) Series 1990 A DN / (Chemical
Bank LOC) [VMIG-1](DAGGER)
3.250% 09/07/96 .......................... 1,500 1,500,000
New York State Power Authority TECP /
(Citibank LOC) [A-1, P-1]
3.650% 12/09/96 .......................... 3,000 3,000,000
New York State Power MB [A-1,
VMIG-1](DOUBLE DAGGER)
3.250% 09/01/96 .......................... 1,500 1,500,000
Sachem Central School District at
Holbrook Suffolk County TAN
Series 1996-97 MB [MIG-1]
4.125% 06/26/97 .......................... 2,000 2,004,717
State of New York TECP
Series R [A-1, P-1]
3.400% 10/01/96 .......................... 1,000 1,000,000
PAR
(000) VALUE
------ -----------
NEW YORK--(CONTINUED)
Suffolk County IDA DN (Nissequogue
Cogen) Series 1994 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.250% 09/04/96 ...................... $3,700 $ 3,700,000
Suffolk County Water Authority
BAN DN 1994 [A-1, VMIG-1](DAGGER)
3.150% 09/04/96 ...................... 3,000 3,000,000
The Trust for Cultural Resources of the
New York Bond (Carnegie Hall) Series
1990 DN / (Dai-ichi Kangyo LOC)
[Aa1](DAGGER)
3.300% 09/07/96 ...................... 100 100,000
Tompkins County BAN
4.250% 06/19/97 ...................... 3,000 3,009,424
Triborough Bridge and Tunnel Authority
DN / (FGIC Insurance) [A-1+,
VMIG-1](DAGGER)
3.200% 09/07/96 ...................... 1,100 1,100,000
-----------
85,110,011
-----------
PUERTO RICO--3.2%
Puerto Rico Government Development
Bank TECP [A-1+]
3.400% 09/16/96 ...................... 2,000 2,000,000
Puerto Rico Highway and Transportation
Authority Series 1993 X DN / (Multiple
Credit Enhancements LOC)
[A-1+, VMIG-1](DAGGER)
3.100% 09/07/96 ...................... 600 600,000
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) RB DN /
(Bank of Tokyo LOC)(DAGGER)
3.550% 09/07/96 ...................... 200 200,000
-----------
2,800,000
-----------
See Accompanying Notes to Financial Statements.
19
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
-----------
TOTAL INVESTMENTS AT VALUE--99.7%
(Cost $87,910,011*) ................ $87,910,011
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.3% .............. 238,802
-----------
NET ASSETS (Applicable to 68,128,708
Bedford shares, 20,031,916 Janney
Montgomery Scott shares and
800 other shares)--100.0% .......... $88,148,813
===========
NET ASSET VALUE, offering and
redemption price per share
($88,148,813 (DIVIDE) 88,161,424) .. $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity date shown is the longer of the next
readjustment date or the date the principal amount shown can be
recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date shown is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not not been audited by the Independent Accountants and,
therefore, are not covered by the Report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB .........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
20
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment Income
Interest .................................................. $118,092,977 $15,900,230 $30,709,263 $2,738,330
------------ ----------- ----------- ----------
Expenses
Investment advisory fees .................................. 7,702,090 1,409,660 2,310,433 270,726
Administration fees ....................................... -- 428,209 -- 77,350
Distribution fees ......................................... 9,304,376 2,427,986 3,236,194 409,287
Service organization fees ................................. 471,499 -- -- --
Directors' fees ........................................... 38,473 7,715 10,037 1,421
Custodian fees ............................................ 345,973 88,191 102,930 24,220
Transfer agent fees ....................................... 3,044,149 291,739 610,887 95,023
Legal fees ................................................ 77,139 17,721 20,228 3,131
Audit fees ................................................ 61,049 12,514 16,044 2,230
Registration fees ......................................... 434,000 192,999 134,940 13,500
Insurance expense ......................................... 43,932 9,056 11,658 1,631
Printing fees ............................................. 426,220 72,100 107,852 8,755
Miscellaneous ............................................. 1,884 387 499 70
------------ ----------- ----------- ----------
21,950,784 4,958,277 6,561,702 907,344
Less fees waived .......................................... (3,543,632) (1,236,642) (671,811) (278,163)
Less expense reimbursement by advisor ..................... (342,158) (17,576) (406,954) --
------------ ----------- ----------- ----------
Total expenses ....................................... 18,064,994 3,704,059 5,482,937 629,181
------------ ----------- ----------- ----------
Net investment income ..................................... 100,027,983 12,196,171 25,226,326 2,109,149
------------ ----------- ----------- ----------
Realized loss on investments .............................. (12,987) (674) (10,995) (5)
------------ ----------- ----------- ----------
Net increase in net assets resulting from operations ...... $100,014,996 $12,195,497 $25,215,331 $2,109,144
============ =========== =========== ==========
</TABLE>
See Accompanying Notes to Financial Statements.
21
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MONEY MARKET PORTFOLIO MARKET PORTFOLIO
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income ........ $100,027,983 $64,913,329 $12,196,171 $9,691,756
Net gain (loss)
on investments ............. (12,987) (18,463) (674) 7,009
-------------- -------------- ------------ ------------
Net increase in net assets
resulting from
operations ................. 100,014,996 64,894,866 12,195,497 9,698,765
-------------- -------------- ------------ ------------
Distributions to shareholders:
Dividends to shareholders
from net investment income:
Bedford shares ............. (49,874,649) (38,765,552) (5,960,711) (5,717,451)
Bradford Shares ............ -- -- (3,611,114) (3,266,535)
Cash Preservation
shares ................... (10,092) (11,336) (3,746) (5,648)
Janney Montgomery
Scott shares ............. (24,434,566) (4,784,092) (2,620,457) (701,975)
RBB shares ................. (2,630) (2,530) (143) (147)
Sansom Street shares ....... (25,706,046) (21,349,819) -- --
Dividends to shareholders from
net realized short-term gains:
Bedford shares ............. -- -- -- --
Bradford shares ............ -- -- -- --
Janney Montgomery
Scott shares ............. -- -- -- --
-------------- -------------- ------------ ------------
Total distributions
to shareholders ........ (100,027,983) (64,913,329) (12,196,171) (9,691,756)
-------------- -------------- ------------ ------------
Net capital share
transactions ................. 374,464,737 736,630,198 (1,864,843) 140,043,103
-------------- -------------- ------------ ------------
Total increase in net assets ... 374,451,750 736,611,735 (1,865,517) 140,050,112
Net Assets:
Beginning of year ............ 1,821,371,688 1,084,759,953 422,753,863 282,703,751
-------------- -------------- ------------ ------------
End of year .................. $2,195,823,438 $1,821,371,688 $420,888,346 $422,753,863
============== ============== ============ ============
</TABLE>
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in
net assets:
Operations:
Net investment income ........ $25,224,326 $12,855,095 $2,109,149 $1,540,989
Net gain (loss)
on investments ............. (10,995) 41,241 (5) (89)
------------ ------------ ----------- -----------
Net increase in net assets
resulting from
operations ................. 25,213,331 12,896,336 2,109,144 1,540,900
------------ ------------ ----------- -----------
Distributions to shareholders:
Dividends to shareholders
from net investment income:
Bedford shares ............. (8,829,111) (7,551,189) (1,686,204) (1,455,172)
Bradford Shares ............ (2,208,959) (2,071,772) -- --
Cash Preservation
shares ................... -- -- -- --
Janney Montgomery
Scott shares ............. (14,186,256) (3,232,134) (422,945) (85,817)
RBB shares ................. -- -- -- --
Sansom Street shares ....... -- -- -- --
Dividends to shareholders from
net realized short-term gains:
Bedford shares ............. (12,697) -- -- --
Bradford shares ............ (3,154) -- -- --
Janney Montgomery
Scott shares ............. (18,204) -- -- --
------------ ------------ ----------- -----------
Total distributions
to shareholders ........ (25,258,381) (12,855,095) (2,109,149) (1,540,989)
------------ ------------ ----------- -----------
Net capital share
transactions ................. 44,099,699 306,300,108 13,146,285 22,779,960
------------ ------------ ----------- -----------
Total increase in net assets ... 44,054,649 306,341,349 13,146,280 22,779,871
Net Assets:
Beginning of year ............ 512,492,356 206,151,007 75,002,533 52,222,662
------------ ------------ ----------- -----------
End of year .................. $556,547,005 $512,492,356 $88,148,813 $75,002,533
============ ============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
22
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO MARKET PORTFOLIO MONEY MARKET PORTFOLIO
--------------------------------- --------------------------------- ---------------------------------
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995 FOR THE JUNE 12, 1995
YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO ENDED OPERATIONS) TO ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income ... 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
------ ------ ------ ------ ------ ------
Total from investment
operations ........ 0.0465 0.0112 0.0278 0.0063 0.0456 0.0109
------ ------ ------ ------ ------ ------
Less distributions
Dividends (from net
investment income) .... (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
------ ------ ------ ------ ------ ------
Total distributions . (0.0465) (0.0112) (0.0278) (0.0063) (0.0456) (0.0109)
------ ------ ------ ------ ------ ------
Net asset value,
end of period ......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
Total Return ............ 4.76% 5.30%(b) 2.81% 2.87%(b) 4.66% 5.03%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) ........ $561,865 $443,645 $89,428 $113,226 $306,757 $302,585
Ratios of expenses
to average
net assets .......... 1.00%(a) 1.00%(a)(b) 0.94%(a) 1.00%(a)(b) 1.00%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets .......... 4.65% 5.04%(b) 2.78% 2.83%(b) 4.56% 4.91%(b)
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE PERIOD
FOR THE JUNE 9, 1995
YEAR (COMMENCEMENT OF
ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Net asset value,
beginning of period ... $ 1.00 $ 1.00
------ ------
Income from investment
operations:
Net investment income ... 0.0262 0.0062
------ ------
Total from investment
operations ........ 0.0262 0.0062
------ ------
Less distributions
Dividends (from net
investment income) .... (0.0262) (0.0062)
------ ------
Total distributions . (0.0262) (0.0062)
------ ------
Net asset value,
end of period ......... $ 1.00 $ 1.00
====== ======
Total Return ............ 2.65% 2.72%(b)
Ratios /Supplemental Data
Net assets, end of
period (000) ........ $20,032 $14,671
Ratios of expenses
to average
net assets .......... .93%(a) 1.00%(a)(b)
Ratios of net investment
income to average
net assets .......... 2.62% 2.68%(b)
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Money Market Portfolio would have been 1.23% for
the year ended August 31, 1996 and 1.23% annualized for the period ended
August 31, 1995. For the Municipal Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.23% for the year ended
August 31, 1996 and 1.30% annualized for the period ended August 31, 1995.
For the Government Obligations Money Market Portfolio, the ratio of
expenses to average net assets would have been 1.25% for the year ended
August 31, 1996 and 1.28% annualized for the period ended August 31, 1995.
For the New York Municipal Money Market Portfolio, the ratio of expenses to
average net assets would have been 1.29% for the year ended August 31, 1996
and 1.41% annualized for the period ended August 31, 1995.
(b) Annualized.
(c) Financial Highlights relate solely to the Janney Montgomery Scott Class of
shares within each portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
23
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family and the Bradford Family.
The Janney Montgomery Scott Money Funds represents interests in four portfolios,
which are covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Fund seeks to maintain net asset value per
share at $1.00 for these portfolios.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have each portfolio continue to qualify
for and elect the tax treatment applicable to regulated investment
companies under the Internal Revenue Code and make the requisite
distributions to its shareholders which will be sufficient to relieve it
from Federal income and excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) NEW YORK MUNICIPAL OBLIGATIONS -- Certain New York state and
New York City municipal obligations in the New York Municipal Money Market
Portfolio may be obligations of issuers which rely in whole or in part on
New York state or New York City revenues, real property taxes, revenues
from health care institutions, or obligations secured by mortgages on real
property. Consequently, the possible effect of economic conditions in New
York or of changes in New York regulations on these obligations must be
considered.
(G) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
24
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corp. ("PIMC"), a wholly-owned subsidiary of PNC Asset Management Group, Inc.,
which is in turn is a wholly-owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for the four portfolios described
herein. PNC Bank serves as the sub-advisor for the Money Market, the Municipal
Money Market and the Government Obligations Money Market Portfolios. The New
York Municipal Money Market Portfolio has no sub-advisor.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on a portfolio's average daily net
assets:
PORTFOLIO ANNUAL RATE
- ------------------------------ --------------------------------------------
Money Market and Government .45% of first $250 million of net assets;
Obligations Money Market .40% of next $250 million of net assets;
Portfolios .35% of net assets in excess of $500 million.
Municipal Money Market and .35% of first $250 million of net assets;
New York Municipal Money .30% of next $250 million of net assets;
Market Portfolios .25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for these portfolios. For each class of shares within a respective
portfolio, the net advisory fee charged to each class is the same on a relative
basis. For the year ended August 31, 1996, advisory fees and waivers for the
four investment portfolios were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ----------- ----------
Money Market Portfolio $7,702,090 $(3,527,715) $4,174,375
Municipal Money Market
Portfolio 1,409,660 (1,218,973) 190,687
Government Obligations
Money Market Portfolio 2,310,433 (671,811) 1,638,622
New York Municipal Money
Market Portfolio 270,726 (268,017) 2,709
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolios. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
25
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the four
investment portfolios were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
---------------- -------------- ----------------
<S> <C> <C> <C>
Money Market Portfolio
Bedford Class $ 1,658,468 $ -- $ 1,658,468
Cash Preservation Class 8,613 (7,971) 642
Janney Montgomery Scott Class 1,045,385 -- 1,045,385
RBB Class 8,149 (7,946) 203
Sansom Street Class 323,534 -- 323,534
----------- ----------- -----------
Total Money Market Portfolio $ 3,044,149 $ (15,917) $ 3,028,232
=========== =========== ===========
Municipal Money Market Portfolio
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
----------- ----------- -----------
Total Municipal Money Market Portfolio $ 291,739 $ (17,669) $ 274,070
=========== =========== ===========
Government Obligations Money Market Portfolio
Bedford Class $ 81,107 $ -- $ 81,107
Bradford Class 11,935 -- 11,935
Janney Montgomery Scott Class 517,845 -- 517,845
----------- ----------- -----------
Total Government Obligations Money Market Portfolio $ 610,887 $ -- $ 610,887
=========== =========== ===========
New York Municipal Money Market Portfolio
Bedford Class $ 68,044 $ -- $ 68,044
Janney Montgomery Scott Class 26,979 -- 26,979
---------- ----------- -----------
Total New York Municipal Money Market Portfolio $ 95,023 $ -- $ 95,023
========== =========== ===========
</TABLE>
In addition, PFPC serves as administrator for the Municipal Money Market
and New York Municipal Money Market Portfolios. The administration fee is
computed daily and payable monthly at an annual rate of .10% of each Portfolio's
average daily net assets. PFPC may, at its discretion, voluntarily waive all or
any portion of its administration fee for a Portfolio. For the year ended August
31, 1996, administration fees and waivers for the two portfolios were as
follows:
<TABLE>
<CAPTION>
GROSS NET
ADMINISTRATION ADMINISTRATION
FEE WAIVER FEE
---------------- ---------------- ----------------
<S> <C> <C> <C>
Municipal Money Market Portfolio $ 428,209 $ -- $ 428,209
New York Municipal Money Market Portfolio 77,350 (10,146) 67,204
</TABLE>
26
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
The Fund, on behalf of each class of shares within the four investment
portfolios, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Bradford, Cash
Preservation, Janney Montgomery Scott and RBB Classes and up to .20% on an
annualized basis for the Sansom Street Class.
For the year ended August 31, 1996, distribution fees for each class within
the four investment portfolios were as follows:
<TABLE>
<CAPTION>
DISTRIBUTION
FEE
--------------
<S> <C>
Money Market Portfolio
Bedford Class $ 5,826,142
Cash Preservation Class 858
Janney Montgomery Scott Class 3,161,043
RBB Class 226
Sansom Street Class 316,107
--------------
Total Money Market Portfolio $ 9,304,376
==============
Municipal Money Market Portfolio
Bedford Class $ 1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
--------------
Total Municipal Money Market Portfolio $ 2,427,986
==============
Government Obligations Money Market Portfolio
Bedford Class $ 1,091,847
Bradford Class 275,120
Janney Montgomery Scott Class 1,869,227
--------------
Total Government Obligations Money Market Portfolio $ 3,236,194
==============
New York Municipal Money Market Portfolio
Bedford Class $ 311,822
Janney Montgomery Scott Class 97,465
--------------
Total New York Municipal Money Market Portfolio $ 409,287
==============
</TABLE>
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, service
organization fees were $471,499 for the Money Market Portfolio.
27
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------- -------------------------------- --------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1996 AUGUST 31, 1995
--------------- --------------- --------------- --------------- --------------- ---------------
VALUE VALUE VALUE VALUE VALUE VALUE
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
Bedford Class $3,797,592,288 $2,966,911,277 $1,022,457,772 $1,104,088,188 $663,889,198 $461,728,190
Bradford Class -- -- 479,401,891 474,166,249 180,761,217 192,414,935
Cash Preservation Class 122,344 84,527 171,907 175,548 -- --
Janney Montgomery
Scott Class 2,359,936,867 855,058,809 408,374,271 208,067,881 1,160,250,876 533,143,649
RBB Class 584,206 31,504 69,480 5,004 -- --
Sansom Street Class 2,191,596,362 1,864,628,110 -- -- -- --
Shares issued in reinvestment
of dividends:
Bedford Class 49,290,088 37,681,204 5,847,767 5,576,408 8,793,104 7,147,384
Bradford Class -- -- 3,506,714 3,126,860 2,158,629 2,029,050
Cash Preservation Class 10,084 11,226 3,515 5,478 -- --
Janney Montgomery
Scott Class 24,077,173 4,534,944 2,602,869 662,565 14,080,097 3,065,158
RBB Class 2,625 2,500 143 146 -- --
Sansom Street Class 18,389,361 16,689,941 -- -- -- --
Shares repurchased:
Bedford Class (3,673,362,904) (2,779,499,052) (1,024,790,222) (1,093,651,142) (643,470,937) (471,908,601)
Bradford Class -- -- (464,445,579) (466,448,018) (172,234,746) (187,671,346)
Cash Preservation Class (165,733) (91,268) (220,929) (220,601) -- --
Janney Montgomery
Scott Class (2,265,789,890) (415,944,656) (434,775,023) (95,506,391) (1,170,127,739) (233,648,311)
RBB Class (580,821) (23,917) (69,419) (5,072) -- --
Sansom Street Class (2,127,237,313) (1,813,444,951) -- -- -- --
--------------- --------------- --------------- --------------- --------------- ---------------
Net increase (decrease) $374,464,737 $736,630,198 ($1,864,843) $140,043,103 $44,099,699 $306,300,108
=============== =============== =============== =============== =============== ===============
Janney Montgomery
Scott Shares authorized 700,000,000 700,000,000 200,000,000 200,000,000 500,000,000 500,000,000
=============== =============== =============== =============== =============== ===============
</TABLE>
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
--------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $449,311,267 $503,711,090
Bradford Class -- --
Cash Preservation Class -- --
Janney Montgomery
Scott Class 81,817,923 32,643,504
RBB Class -- --
Sansom Street Class -- --
Shares issued in reinvestment
of dividends:
Bedford Class 1,674,883 1,425,782
Bradford Class -- --
Cash Preservation Class -- --
Janney Montgomery
Scott Class 414,118 78,024
RBB Class -- --
Sansom Street Class -- --
Shares repurchased:
Bedford Class (443,200,310) (497,028,383)
Bradford Class -- --
Cash Preservation Class -- --
Janney Montgomery
Scott Class (76,871,596) (18,050,057)
RBB Class -- --
Sansom Street Class -- --
--------------- ---------------
Net increase (decrease) $13,146,285 $22,779,960
=============== ===============
Janney Montgomery
Scott Shares authorized 100,000,000 100,000,000
=============== ===============
28
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Capital paid-in
Bedford Class $1,109,351,734 $202,009,609 $192,603,016 $68,128,708
Bradford Class -- 129,398,582 57,191,735 --
Cash Preservation Class 202,360 115,765 -- --
Janney Montgomery Scott Class 561,873,247 89,426,172 306,763,729 20,031,16
RBB Class 61,412 5,143 -- --
Sansom Street Class 524,367,399 -- -- --
Other Classes 800 800 800 800
Accumulated net realized gain (loss)
on investments
Bedford Class (17,400) (69,803) (4,248) (12,592)
Bradford Class -- 339 (1,261) --
Cash Preservation Class (3) 5 -- --
Janney Montgomery Scott Class (7,821) 1,734 (6,766) (19)
RBB Class (1) -- -- --
Sansom Street Class (8,289) -- -- --
-------------- ------------ ------------ ------------
$2,195,823,438 $420,888,346 $556,547,005 $88,148,813
============== ============ ============ ============
</TABLE>
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, capital loss carryovers were available to offset future
realized gains as follows: $33,513 in the Money Market Portfolio of which $2,062
expires in 2002, $18,464 expires in 2003, $12,987 expires in 2004; $67,725 in
the Municipal Money Market Portfolio of which $55,760 expires in 1999, $444
expires in 2000, $1,058 expires in 2001, $9,789 expires in 2002, $674 expires in
2004, $12,275 in the Government Obligations Money Market Portfolio which expires
in 2004; and $12,611 in the New York Municipal Money Market Portfolio of which
$10,939 expires in 1998, $1,256 expires in 1999, $322 expires in 2002, $89
expires in 2003 and $5 expires in 2004.
29
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Money Market Portfolio: Bedford, Cash Preservation, Bedford and
RBB and Sansom Street. The Fund currently offers four other classes of shares
representing interests in the Municipal Money Market Portfolio: Bedford,
Bradford, Cash Preservation, and RBB. The Fund currently offers two other
classes of shares representing interests in the Government Obligations Money
Market Portfolio: Bedford and Bradford. The Fund currently offers one other
class of shares representing an interest in the New York Municipal Money Market
Portfolio: Bedford. Each class is marketed to different types of investors.
Financial Highlights of the RBB and Cash Preservation Classes are not presented
in this report due to their immateriality. Such information is available in the
annual reports of each respective family. The financial highlights of certain of
the other classes are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income. .......... 0.0469 0.0486 0.0278 0.0243 0.0375
Net gains on securities (both
realized and unrealized) -- -- -- -- 0.0007
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0469 0.0486 0.0278 0.0243 0.0382
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................ (0.0469) (0.0486) (0.0278) (0.0243) (0.0375)
Distributions (from capital gains) -- -- -- -- (0.0007)
-------- -------- -------- -------- --------
Total distributions .......... (0.0469) (0.0486) (0.0278) (0.0243) (0.0382)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ...................... 4.79% 4.97% 2.81% 2.46% 3.89%
Ratios /Supplemental Data
Net assets, end of year (000) ... $1,109,334 $935,821 $710,737 $782,153 $736,842
Ratios of expenses to average
net assets ..................... .97%(a) .96%(a) .95%(a) .95%(a) .95%(a)
Ratios of net investment income
to average net assets 4.69% 4.86% 2.78% 2.43% 3.75%
</TABLE>
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year ............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income. .......... 0.0288 0.0297 0.0195 0.0195 0.0287
Net gains on securities (both
realized and unrealized) -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations .................. 0.0288 0.0297 0.0195 0.0195 0.0287
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................ (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital gains) -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions .......... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
-------- -------- -------- -------- --------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ...................... 2.92% 3.01% 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000) ... $201,940 $198,425 $182,480 $215,577 $176,950
Ratios of expenses to average
net assets ..................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income
to average net assets 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been 1.14%, 1.17%, 1.16%, 1.19%,
and 1.20% for the years ended August 31, 1996, 1995, 1994, 1993, and 1992,
respectively. For the Municipal Money Market Portfolio, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.12%, 1.16%,
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
30
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income. ............. 0.0458 0.0475 0.0270 0.0231 0.0375
Net gains on securities (both
realized and unrealized) .......... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment
operations ..................... 0.0458 0.0475 0.0270 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from capital gains) . -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions ............. (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value,
end of year ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ......................... 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios /Supplemental Data
Net assets, end of year ............ $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average
net assets ........................ .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income
to average net assets ............. 4.58% 4.75% 2.70% 2.31% 3.75%
</TABLE>
<TABLE>
<CAPTION>
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income. ............. 0.0278 0.0290 0.0198 0.0234 0.0300
Net gains on securities (both
realized and unrealized) .......... -- -- -- -- --
-------- -------- -------- -------- --------
Total from investment
operations ..................... 0.0278 0.0290 0.0198 0.0234 0.0300
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................... (0.0278) (0.0290) (0.0198 (0.0234) (0.0300)
Distributions (from capital gains) . -- -- -- -- --
-------- -------- -------- -------- --------
Total distributions ............. (0.0278) (0.0290) (0.0198) (0.0234) (0.0300)
-------- -------- -------- -------- --------
Net asset value,
end of year ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ......................... 2.83% 2.94% 2.00% 2.37% 3.04%
Ratios /Supplemental Data
Net assets, end of year ............ $ 68,116 $ 60,330 $ 52,222 $ 55,677 $ 40,751
Ratios of expenses to average
net assets ........................ .77%(a) .76%(a) .50%(a) .14%(a) .33%(a)
Ratios of net investment income
to average net assets ............. 2.78% 2.90% 1.98% 2.34% 3.00%
<FN>
(a) Without the waiver of advisory and administration fees and without the
reimbursement of certain operating expenses, the ratios of expenses to
average net assets for the Government Obligations Money Market Portfolio
would have been 1.10%, 1.13%, 1.17%, 1.18 and 1.12% for the years ended
August 31, 1996, 1995, 1994, 1993 and 1992, respectively. For the New York
Municipal Money Market Portfolio, the ratios of expenses to average net
assets would have been 1.14%, 1.22%, 1.20%, 1.20% and 1.22% for the years
ended August 31, 1996, 1995, 1994, 1993 and 1992, respectively.
</FN>
</TABLE>
31
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 10, 1992
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................... 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities (both realized
and unrealized) ....................... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations .......... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) .. (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) ...... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions ................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- --------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .............................. 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period ............... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average
net assets ............................ .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income
to average net assets ................. 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively and 1.15% annualized for the
period end August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
32
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
BRADFORD MUNICIPAL MONEY MARKET SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 10, 1992
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- -------- --------
Total from investment operations ...... 0.0288 0.0297 0.0195 0.0195 0.0154
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) .. (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- -------- --------
Total distributions ................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
-------- -------- -------- -------- --------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .............................. 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ......... $129,399 $110,936 $100,089 $ 76,975 $ 69,586
Ratios of expenses to average net assets .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets .................... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
</FN>
</TABLE>
33
<PAGE>
THE JANNEY MONTGOMERY SCOTT MONEY FUNDS
THE RBB FUND, INC.
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE SANSOM STREET FAMILY
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------
Income from investment operations:
Net investment income ........................ 0.0518 0.0543 0.0334 0.0304 0.0435
Net gains on securities (both realized
and unrealized) ............................. -- -- -- -- 0.0007
-------- -------- -------- -------- -------
Total from investment operations .......... 0.0518 0.0543 0.0334 0.0304 0.0442
-------- -------- -------- -------- -------
Less distributions
Dividends (from net investment income) ....... (0.0518) (0.0543) (0.0334) (0.0304) (0.0435)
Distributions (from capital gains) ........... -- -- -- -- (0.0007)
-------- -------- -------- -------- -------
Total distributions ....................... (0.0518) (0.0543) (0.0334) (0.0304) (0.0442)
-------- -------- -------- -------- -------
Net asset value, end of year ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== =======
Total Return ................................... 5.30% 5.57% 3.39% 3.08% 4.51%
Ratios /Supplemental Data
Net assets, end of year ...................... $524,359 $441,614 $373,745 $190,794 $228,079
Ratios of expenses to average net assets ..... .48%(a) .39%(a) .39%(a) .34%(a) .35%(a)
Ratios of net investment income to average
net assets .................................. 5.18% 5.43% 3.34% 3.04% 4.35%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Money Market Portfolio would have been .65%, .59%, .60%, .60% and
.61% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
34
<PAGE>
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.
- ---------------------------------------------------
CONTENTS
PAGE
INTRODUCTION ............................... 2
FINANCIAL HIGHLIGHTS ....................... 3
INVESTMENT OBJECTIVES AND POLICIES ......... 4
PURCHASE AND REDEMPTION OF SHARES .......... 8
MANAGEMENT ................................. 12
DISTRIBUTION OF SHARES ..................... 13
DIVIDENDS AND DISTRIBUTIONS ................ 14
TAXES ...................................... 15
DESCRIPTION OF SHARES ...................... 16
OTHER INFORMATION .......................... 17
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
BRADFORD
MUNICIPAL MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The investment objective of the Municipal Money Market Portfolio is to
provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal.
The Municipal Money Market Portfolio (the "Portfolio") seeks to achieve such
objective by investing substantially all of its assets in a diversified
portfolio of short-term Municipal Obligations. "Municipal Obligations" are
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies, instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular Federal
income tax but which may constitute an item of tax preference for purposes of
the Federal alternative minimum tax. The Bradford shares of the Municipal Money
Market Portfolio are a class of shares (the "Class") of common stock of The RBB
Fund, Inc. (the "Fund"), an open-end management investment company. Shares of
the Class ("Shares") are offered by this Prospectus and represent interests in
such Portfolio.
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 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
Portfolio, PNC Bank, National Association serves as sub-adviser for the
Portfolio and custodian for the Fund and PFPC Inc. serves as administrator of
the Portfolio and as 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.
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
<PAGE>
INTRODUCTION
- -------------------------------------------------------------------------------
The RBB Fund, Inc. 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 Municipal Money Market Portfolio.
The investment objective of the Municipal Money Market Portfolio (the
"Portfolio") is to provide as high a level of current interest income exempt
from Federal income tax as is consistent with maintaining liquidity and
stability of principal. To achieve this objective, the Municipal Money Market
Portfolio invests substantially all of its assets in a diversified portfolio of
short-term Municipal Obligations which meet certain ratings criteria and present
minimal credit risks to the Portfolio. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be invested in
Municipal Obligations, the interest on which is exempt from the regular Federal
income tax but which may constitute an item of tax preference for purposes of
the Federal alternative minimum tax.
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 Portfolio's investment adviser is PNC Institutional Management
Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank") serves as
sub-adviser of the Portfolio and custodian for the Fund, and PFPC Inc. ("PFPC")
serves as administrator to the Portfolio and 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 through his broker or by direct
purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Portfolio 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 purchase
of securities on a "when-issued" basis and the purchase of stand-by commitments.
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."
<TABLE>
<CAPTION>
FEE TABLE
ANNUAL FUND OPERATING EXPENSES (BRADFORD SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<S> <C> <C>
Management fees (after waivers)(1) .05%
12b-1 fees (after waivers)(1) .57
Other Expenses (after reimbursements) .22
---
Total Fund Operating Expenses (Bradford Shares) (after waivers
and reimbursements) .84%
===
</TABLE>
(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 Municipal Money Market
Portfolio, Management fees would be .33%; 12b-1 fees would be .57%; Other
Expenses would be .22% and Total Fund Operating Expenses would be 1.12%.
2
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
An investor would pay the following
expenses on a $1,000 investment,
assuming
(1) 5% annual return and
(2) redemption at the end
of each time period: $9 $27 $47 $104
</TABLE>
* 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
(Bradford 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 Shares 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.) Expense figures are based on actual costs 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 the Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time the Class 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 Class refers to the income
generated by an investment in the Class 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 the Class 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 "tax-equivalent yield" of
the Class may also be quoted from time to time, which shows the level of taxable
yield needed to produce an after-tax equivalent to the tax-free yield of the
Class. This is done by increasing the yield of the Class (calculated as above)
by the amount necessary to reflect the payment of Federal income tax at a stated
tax rate.
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 the Class are not reflected in the yield 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
Portfolio depending on the allocation of expenses to each class of the
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Bradford Class representing an interest in the Municipal Money
Market Portfolio for the period indicated. The financial data included in this
table for each of the periods ended August 31, 1992 through August 31, 1996 are
a part of the Fund's financial statements 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.
3
<PAGE>
<TABLE>
<CAPTION>
The financial data included in this table should be read in conjunction with the
financial statements and related notes included in the Statement of Additional
Information.
BRADFORD CLASSES
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (C)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
MUNICIPAL MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 10, 1992
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Income from investment operations:
Net investment income 0.0288 0.0297 0.0195 0.0195 0.0154
------ ------ ------ ------ ------
Total from investment
operations 0.0288 0.0297 0.0195 0.0195 0.0154
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income) (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
------- ------- ------- ------- -------
Total Distributions (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======== ======
Total Return 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios/Supplemental Data:
Net assets, end of period (000) $129,399 $110,936 $100,089 $ 76,975 $ 69,586
Ratios of expenses to average net assets .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income to
average net assets 2.88% 2.97% 1.95% 1.95% 2.40%(b)
</TABLE>
(a) Without the waiver of advisory, transfer agency and administration fees and
without the reimbursement of certain operating expenses, the ratios of
expenses to average net assets would have been 1.12%, 1.14%, 1.11% and
1.16% for the years ended August 31, 1996, 1995, 1994 and 1993,
respectively, and 1.16% annualized for the period ended August 31, 1992.
(b) Annualized.
(c) Financial
Highlights relate solely to the Bradford Class of shares within the Portfolio.
INVESTMENT OBJECTIVES AND POLICIES
- -------------------------------------------------------------------------------
The Municipal Money Market Portfolio's investment objective is to provide
as high a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and relative stability of principal.
The Municipal Money Market Portfolio invests substantially all of its assets in
a diversified portfolio of short-term Municipal Obligations, the interest on
which, in the opinion of bond counsel or counsel to the issuer, as the case may
be, is exempt from the regular Federal income tax and which meet certain ratings
criteria and present minimal credit risks. See "Eligible Securities". During
periods of normal market conditions, at least 80% of the net assets of the
Municipal Money Market Portfolio will be invested in Municipal Obligations.
Municipal Obligations include securities the interest on which is exempt from
the regular Federal income tax and is not an item of tax preference for purposes
of the Federal alternative min-
4
<PAGE>
imum tax ("Tax-Exempt Interest"), although to the extent the Portfolio invests
in certain private activity bonds issued after August 7, 1986 ("Alternative
Minimum Tax Securities"), a portion of the interest earned by the Portfolio may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term Municipal
Obligations which are determined by the Portfolio's investment adviser to
present minimal credit risks and that meet certain ratings criteria pursuant to
guidelines established by the Fund's Board of Directors. The Portfolio may also
purchase securities that are unrated at the time of purchase provided that such
securities are determined to be of comparable quality to eligible rated
securities by the Portfolio's investment adviser in accordance with guidelines
approved by the Fund's Board of Directors. The applicable Municipal Obligations
ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending investment during
temporary defensive periods or if, in the opinion of the Portfolio's investment
adviser, suitable obligations bearing Tax-Exempt Interest or AMT Interest are
unavailable. There is no percentage limitation on the amount of assets which may
be held uninvested during temporary defensive periods. Uninvested cash reserves
will not earn income.
The two principal classifications of Municipal Obligations are "general
obligation" securities and "revenue" securities. General obligation securities
are secured by the issuer's pledge of its full faith, credit and taxing power
for the payment of principal and interest. Revenue securities are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise tax or other specific
excise tax or other specific revenue source such as the user of the facility
being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank letter or line of
credit, guarantee or commitment to lend. While there may be no active secondary
market with respect to a particular variable rate demand note purchased by the
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 one year, depending upon the instrument involved. The absence of such
an active secondary market, however, could make it difficult for the Portfolio
to dispose of a variable rate demand note if the issuer defaulted on its payment
obligation or during the periods that the Portfolio is not entitled to exercise
its demand rights. The Portfolio could, for this or other reasons, suffer a loss
to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of prior law
affecting the issuance and use of proceeds of certain Municipal Obligations. A
new definition of private activity bonds applies to many types of bonds,
including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treat
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<PAGE>
ment of bonds issued to finance governmental operations. As used in this
Prospectus, the term "private activity bonds" also includes industrial
development revenue bonds issued prior to the effective date of the provisions
of the Tax Reform Act of 1986. Investors should also be aware of the possibility
of state and local alternative minimum or minimum income tax liability on
interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more than 25% of
its net assets in (i) Municipal Obligations whose issuers are in the same state,
(ii) Municipal Obligations the interest on which is paid solely from revenues of
similar projects, and (iii) private activity bonds bearing Tax-Exempt Interest,
it does not currently intend to do so on a regular basis. To the extent the
Municipal Money Market Portfolio's assets are concentrated in Municipal
Obligations that are payable from the revenues of similar projects or are issued
by issuers located in the same state, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market Portfolio may
invest in tax-exempt derivative securities such as tender option bonds,
custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also 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.
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.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include: (1) U.S. Government securities, (2) securities
that are rated at the time of purchase in the two highest categories by one or
more unaffiliated nationally recognized statistical rating organizations
("NRSROs") for such securities (e.g., commercial paper rated "A-1" or "A-2" by
Standard & Poor's Corporation ("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 eligi-
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<PAGE>
ble 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 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 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 Municipal Money Market Portfolio's investment objective and the
policies described above may be changed by the Fund's Board of Directors without
the affirmative vote of the holders of a majority of the Municipal Money Market
Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The Municipal Money
Market Portfolio may not, however, change the following investment limitations
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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary purposes 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 the lesser of the dollar amounts
borrowed or 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,
more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the same industry.
In addition, without the affirmative vote of the holders of a majority of
the Portfolio's outstanding shares, the Portfolio may not change its policy of
investing during normal market conditions at least 80% of its net assets in
obligations the interest on which is Tax-Exempt Interest or AMT Interest.
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 Investment Company Act
of 1940 (the "1940 Act"), the Municipal Money Market Portfolio will meet the
following limitation on its investments in addition to the fundamental
investment limitations described above. This limitation may be changed without a
vote of shareholders of the Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if
after the acquisition of the Put the Municipal Money Market Portfolio has
more than 5% of its total assets invested in instruments issued by or
subject to Puts from the same institution, except that the foregoing
condition shall only be applicable with respect to 75% of the Municipal
Money Market Portfolio's total assets. A "Put" means a right to sell a
specified underlying instru
7
<PAGE>
ment within a specified period of time and at a specified exercise price
that may be sold, transferred or assigned only with the underlying
instrument.
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Shares are sold without a sales load on a continuous basis by the
Distributor. The Distributor is located at 466 Lexington Avenue, New York, New
York. Investors may purchase Shares through an account maintained by the
investor with his brokerage firm (an "Account") and may also purchase Shares
directly by mail or bank wire. The minimum initial investment is $1,000, and the
minimum subsequent investment is $100. The Fund in its sole discretion may
accept or reject any order for purchases of 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 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
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
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 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.
A broker may offer investors maintaining Accounts the ability to purchase
Shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have his "free-credit" cash balances in his Account automatically invested in
Shares. The frequency of investments and the minimum investment requirement will
be established by the broker and the Fund. In addition, the broker may require a
minimum amount of cash and/or securities to be deposited in an Account for
participants in its Purchase Program. The description of the particular broker's
Purchase Program should be read for details, and any inquiries concerning an
Account under a Purchase Program should be directed to the broker.
If a broker makes special arrangements under which orders for 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 cus
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<PAGE>
todian 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.
DIRECT PURCHASES. An investor may also make direct investments in Shares at
any time through any broker that has entered into a dealer agreement with the
Distributor (a "Dealer"). An investor may make an initial investment by mail by
fully completing and signing an application obtained from a Dealer (an
"Application") and mailing it, together with a check payable to "Bradford
Municipal Money Market" c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. An
Application will be returned to the investor unless it contains the name of the
Dealer from whom it was obtained. Subsequent purchases may be made through a
Dealer or 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 Dealer wire Federal Funds to the Fund's
Custodian, PNC Bank. An investor's bank or Dealer 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) 533-7719 (in
Delaware call collect (302) 791-1196), and provide it with your name, address,
telephone number, Social Security or Tax Identification Number, 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 Dealer to wire the specified amount, together with
your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with 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.
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 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 next
9
<PAGE>
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.
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request, to Bradford Municipal Money
Market, c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. 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, each signature must be
guaranteed. 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). You may call the Transfer Agent at (800) 533-7719 to
determine whether the entity that will guarantee the signature is an eligible
guarantor. Guarantees must be signed by an authorized signatory of the bank,
trust company or member firm and "Signature Guaranteed" must appear with the
signature.
Direct 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) 533-7719 (in Delaware call collect (302) 791-1196).
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.
Neither PFPC nor the Fund will be liable for any loss, liability, cost or
expense for following the procedures described 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 checkwriting privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may
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<PAGE>
be made payable to the order of anyone. The minimum amount of a check is $100;
however, a broker/dealer may establish a higher minimum. An investor wishing to
use this check writing redemption procedure should complete specimen signature
cards, and then forward such signature cards to PFPC. PFPC will then arrange for
the checks to be honored by PNC Bank. Investors who own Shares through an
Account should contact their brokers for signature cards. Investors with 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
equaling 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 cashed at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
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.
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. The 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 the 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.
11
<PAGE>
MANAGEMENT
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BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio of the
Fund 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 Municipal Money Market Portfolio is one of such portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for the Municipal Money Market 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 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 the 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 Portfolio's 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 Portfolio, PIMC is entitled to receive from the Portfolio a fee, computed
daily and payable monthly, at an annual rate of .35% of the first $250 million
of the Portfolio's average daily net assets, .30% of the next $250 million of
the Portfolio's average daily net assets and .25% of the average daily net
assets of the Portfolio 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 agreement 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 .05% of the average net assets of the Portfolio. For
that same year, PIMC waived approximately .28% of investment advisory fees
payable to it with respect to the Portfolio.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money Market Portfolio
and generally assists the Portfolio in all aspects of its administration and
operation including matters relating to the maintenance of financial records and
12
<PAGE>
accounting. PFPC is entitled to an administration fee, computed daily and
payable monthly at a rate of .10% of the average daily net assets of the
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 of shares of the
Fund, the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund, 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 the
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, reimbursement of such amounts will have the
effect of increasing the Portfolio's expense ratio and of decreasing yield to
investors.
For the fiscal year ended August 31, 1996, the Fund's total expenses were
1.12% of the average net assets with respect to the Bradford Class of the
Municipal Money Market Portfolio (not taking into account waivers and
reimbursements of .28%.
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 pursuant to a distribution
contract (the "Distribution Contract") with the Fund on behalf of the Class.
13
<PAGE>
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 Investment Company Act of 1940 (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. The actual amount of such
compensation is agreed upon from time to time by the Fund's Board of Directors
and the Distributor. Under the Distribution Contract, the Distributor has agreed
to accept compensation for services thereunder and under the Plan in the amount
of .60% of the average net assets of the Class on an annualized basis in any
year. Pursuant to the conditions of an exemptive order granted by the Securities
and Exchange Commission, the Distributor has agreed to waive its fee with
respect to the Class on any day to the extent necessary to assure that the fee
required to be accrued by such Class does not exceed the income of such Class on
that day. In addition, the Distributor may, in its discretion, voluntarily waive
from time to time all or any portion of its distribution fee.
Under 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 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 in effect with respect to the Class has been approved by
shareholders. Under the terms of Rule 12b-1, the Plan 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 Municipal Money Market Portfolio to
the Portfolio's shareholders. All distributions are reinvested in the form of
additional full and fractional Shares 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.
14
<PAGE>
TAXES
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The following discussion is only a brief summary of some of the important
tax considerations generally affecting the Portfolio and its 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, the
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 currently 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 Portfolio intends to pay substantially all of its dividends as "exempt
interest dividends." Investors in the Portfolio should note, however, that
taxpayers are required to report the receipt of tax-exempt interest and "exempt
interest dividends" in their Federal income tax returns and that in two
circumstances such amounts, while exempt from regular Federal income tax, are
subject to alternative minimum tax at a rate of 24% in the case of individuals,
trusts and estates and 20% in the case of corporate taxpayers. First, tax-exempt
interest and "exempt interest dividends" derived from certain private activity
bonds issued after August 7, 1986, will generally constitute an item of tax
preference for corporate and noncorporate taxpayers in determining alternative
minimum tax liability. Although it does not currently intend to do so, the
Portfolio may invest up to 100% of its net assets in such private activity
bonds. Secondly, tax-exempt interest and "exempt interest dividends" derived
from all other Municipal Obligations must be taken into account by corporate
taxpayers in determining their adjusted current earnings adjustment for
alternative minimum tax purposes. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments.
The Portfolio will determine annually the percentages of its net investment
income which are exempt from the regular Federal income tax, which constitute an
item of tax preference for purposes of the Federal alternative minimum tax, and
which are fully taxable and will apply such percentages uniformly to all
distributions declared from net investment income during that year. These
percentages may differ significantly from the actual percentages for any
particular day.
The Fund will send written notices to shareholders annually regarding the
tax status of distributions made by the Portfolio. Ordinarily, shareholders will
include all dividends declared by the Fund in income in the year of payment.
However, 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 and paid by the Fund on
December 31 of such year, if such dividends are paid during January of the
following year. The Fund intends to make sufficient actual or deemed
distributions with respect to the Municipal Money Market Portfolio prior to the
end of each calendar year to avoid liability for Federal excise tax.
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<PAGE>
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. Shares of the Portfolio would not be suitable for tax-exempt
institutions and may not be suitable for retirement plans qualified under
Section 401 of the Code, H.R. 10 plans and individual retirement accounts since
such plans and accounts are generally tax-exempt and, therefore, not only would
not gain any additional benefit from the Portfolio's dividends being tax-exempt
but also such dividends would be taxable when distributed to the beneficiary.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Fund which may
differ from the Federal income tax consequences described above.
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 the 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 BRADFORD SHARES OF THE MUNICIPAL MONEY MARKET
PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO SUCH SHARES.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares 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.
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<PAGE>
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 when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of common stock of the Fund may elect all of
the directors.
As of 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
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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) 533-7719 (in Delaware call collect
(302) 791-1196).
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<PAGE>
BRADFORD MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIO OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary information
pertaining to a class of shares (the "Class") of The RBB Fund, Inc. representing
interests in the Municipal Money Market Portfolio (the "Portfolio"). This
Statement of Additional Information is not a prospectus, and should be read only
in conjunction with the Bradford Municipal Money Market Portfolio Prospectus of
The RBB Fund, Inc, 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 2
Investment Objective and Policies. ............ 2 5
Directors and Officers ........................ 8 N/A
Investment Advisory, Distribution and Servicing
Arrangements ............................ 11 12
Portfolio Transactions ........................ 16 N/A
Purchase and Redemption Information ........... 17 8
Valuation of Shares ........................... 18 11
Taxes ......................................... 20 15
Additional Information Concerning Fund Shares.. 25 16
Miscellaneous ................................. 27 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 seventeen separate
investment portfolios. This Statement of Additional Information pertains to
shares of the Class of common stock of the Fund (the "Shares") representing
interests in the Municipal Money Market Portfolio of the Fund. The Shares are
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 OBJECTIVE AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective 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.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments held by
the 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 Portfolio and
whether a variable rate demand instrument has a remaining maturity of 397
calendar days or less, each instrument will be deemed by the Portfolio to have a
maturity equal to the longer of the period remaining until its next interest
rate adjustment or the period remaining until the principal amount can be
recovered through demand. In determining whether an unrated variable rate demand
instrument is an eligible security, the Portfolio's investment adviser will
follow guidelines adopted by the Fund's Board of Directors.
FIRM COMMITMENTS. Firm commitments for securities include "when issued" and
delayed delivery securities purchased for delivery beyond the normal settlement
date at a stated price and yield. While the 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
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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 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 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 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 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 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. The Portfolio's reliance upon the credit of these dealers,
banks and broker-dealers will be secured by the value of the underlying
Municipal Obligations that are subject to the commitment.
The Portfolio will acquire stand-by commitments solely to facilitate
portfolio liquidity and does not intend to exercise its 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
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<PAGE>
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
ELIGIBLE SECURITIES. The Portfolio will only purchase "eligible securities"
that present minimal credit risks as determined by the Portfolio's investment
adviser pursuant to guidelines adopted by the Board of Directors. Eligible
securities generally include (1) U.S. Government securities; (2) securities that
(a) are rated (at the time of purchase) by two more nationally recognized
statistical rating organizations ("NRSROs") in the two highest rating categories
for such securities (e.g., commercial paper rated "A-1" or "A-2" by S&P, or
rated "Prime-1" or "Prime-2" by Moody's), or (b) are rated (at the time of
purchase) by the only NRSRO rating the security in one of its two highest rating
categories for such securities; (3) short-term obligations and long-term
obligations that have remaining maturities of 397 calendar days or less,
provided in each instance that such obligations have no short-term rating and
are comparable in priority and security to a class of short-term obligations of
the issuer that has been rated in accordance with (2)(a) or (b) above
("comparable obligations"); (4) securities that are not rated and are issued by
an issuer that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to a security satisfying (2) or (3) above; and (5) long-term obligations
that have remaining maturities in excess of 397 calendar days that are subject
to a demand feature or put (such as a guarantee, a letter of credit or similar
credit enhancement) ("demand instrument") (a) that are unconditional (readily
exercisable in the event of default), provided that the demand feature satisfies
(2), (3) or (4) above, or (b) that are not unconditional, provided that the
demand feature satisfies (2), (3) or (4) above, and the demand instrument or
long-term obligations of the issuer satisfy (2) or (4) above for long-term debt
obligations.
ILLIQUID SECURITIES. The Portfolio may not invest more than 10% of its net
assets in illiquid securities, 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.
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")
and securities which are otherwise not readily marketable. 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
-4-
<PAGE>
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
municipal securities. 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.
The SEC adopted Rule 144A which allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities 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, 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 Portfolio may not:
(1) borrow money, except from banks for temporary purposes 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 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate any of its assets except in connection with any such borrowing and
then in amounts not in excess of the lesser of the dollar amounts borrowed or
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
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<PAGE>
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 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 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;
(4) underwrite securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio may be
deemed an underwriter under Federal securities laws and except to the extent
that the purchase of Municipal Obligations directly from the issuer thereof in
accordance with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(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;
(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
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(11) make investments for the purpose of exercising control or management.
In addition to the foregoing enumerated investment limitations, the
Portfolio may not (i) under normal market conditions invest less than 80% of its
net assets in securities the interest on which is exempt from the regular
Federal income tax, although the interest on such securities may constitute an
item of tax preference for purposes of the Federal alternative minimum tax, (ii)
invest in private activity bonds where the payment of principal and interest are
the responsibility of a company (including its predecessors) with less than
three years of continuous operations; and (iii) purchase any securities which
would cause, at the time of purchase, more than 25% of the value of the total
assets of the Portfolio to be invested in the obligations of the issuers in the
same industry.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lessor 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.
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In order to permit the sale of 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 Shares in the
state involved.
So long as it values its portfolio securities on the basis of the amortized
cost method of valuation pursuant to Rule 2a-7 under the 1940 Act, the Municipal
Money Market Portfolio will meet the following limitation on its investments in
addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any Put if after
the acquisition of the Put the Municipal Money Market Portfolio has more than 5%
of its total assets invested in instruments issued by or subject to Puts from
the same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the Municipal Money Market Portfolio's total
assets. A "Put" means a right to sell a specified underlying instrument within a
specified period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
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 Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M.
Warburg, Pincus & Co.,
Inc.; Since 1990,
Chief Executive
Officer and since 1991
Secretary, Counsellors
Securities Inc.;
Officer of various
investment companies
advised by Warburg,
Pincus Counsellors,
Inc.
Robert Sablowsky - 58** Director Since OCTOBER 1996,
110 Wall Street SENIOR VICE PRESIDENT
New York, NY 10005 OF FAHNESTOCK & CO,
INC., 1985 TO 1996,
Executive Vice
President of Gruntal &
Co., Inc., Director,
Gruntal & Co., Inc.
Francis J. McKay - 60 Director Since 1963, Executive
-8-
<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
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 19101 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, Inc.)
(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 Chairman 1969 to
16th Floor present, Comcast
Phila., PA 19107-3723 Corporation; Director,
Comcast Cablevision of
Philadelphia (cable
television
communications) and
Nextel (Wireless
Communications).
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
Insurance Co.
Edward J. Roach - 72 President and Treasurer Certified Public
Suite 100 Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
400 Bellevue Parkway Center; Trustee
Wilmington, DE 19809 Emeritus, Pennsylvania
School for the Deaf;
Trustee Emeritus,
Immaculata College;
Vice President and
Treasurer of various
investment companies
advised by PNC Bank
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<PAGE>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
Institutional
Management Corporation.
Morgan R. Jones - 57 Secretary Chairman, the law firm
1100 PNB Bank Building of Drinker Biddle &
Broad and Chestnut Streets Reath, Philadelphia,
Philadelphia, PA 19107 Pennsylvania; Director,
Rocking Horse Child
Care Centers of
America, Inc.
- -------------------------
* 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
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<PAGE>
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 Bank Institutional
Management Corporation ("PIMC"), the Fund's adviser, PNC Bank, National
Association ("PNC Bank"), the Portfolio's sub-ADVISER and the Fund's custodian,
PFPC Inc. ("PFPC"), the Municipal Money Market Portfolio's administrator and the
Fund's transfer and dividend disbursing agent, and Counsellors Securities Inc.
(the "Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
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 pursuant to an Investment Advisory Agreement dated
April 21, 1992, and PNC Bank renders sub-advisory services
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<PAGE>
to the Portfolio pursuant to a Sub-Advisory Agreement, dated August 16, 1988.
The 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) $190,687
IN ADVISORY FEES AND WAIVED $ 1,218,973 OF ADVISORY FEES WITH RESPECT TO THE
MUNICIPAL MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED AUGUST 31, 1995, PIMC
received (after waivers) $67,752 in advisory fees and waived $1,041,321 of
advisory fees with respect to the Municipal Money Market Portfolio under its
Advisory Contract with the Fund. For the year ended August 31, 1994, PIMC
received (after waivers) $7,733 in advisory fees and waived $1,091, 646 in
advisory fees with respect to the Municipal Market Portfolio under its Advisory
Contract with the Fund.
As required by various state regulations, PIMC will reimburse the Fund or
the Portfolio (as applicable) if and to the extent that the aggregate operating
expenses of the Fund or the Portfolio 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 the 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 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
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<PAGE>
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 the
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 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 by shareholders of the Portfolio at special meetings held December 22,
1989, as adjourned (sub-advisory agreement) and June 10, 1992, as adjourned
(current advisory agreement). 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. Each of the Advisory Contracts may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
assignment thereof.
ADMINISTRATION AGREEMENT. PFPC serves as the administrator to the Portfolio
pursuant to an Administration and Accounting Services Agreement dated April 12,
1992 (the "Administration Agreement"). PFPC has agreed to furnish to the Fund on
behalf of the Portfolio statistical and research data, clerical, accounting and
bookkeeping services and certain other services required by the Fund. In
addition, PFPC has agreed to prepare and file various reports with the
appropriate regulatory agencies and prepare materials required by the SEC or any
state securities commission having jurisdiction over the Fund.
The Administration Agreement provides that PFPC shall not be liable for any
error of judgment or mistake of law or any loss suffered by the Fund or the
Portfolio in connection with the performance of the agreement,
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<PAGE>
except a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreement, PFPC receives a fee
of .10% of the average daily net assets of the Portfolio.
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 the 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 Shares pursuant to a Transfer Agency Agreement dated
November 5, 1991 and supplement dated November 5, 1991 (the "Transfer Agency
Agreement"), under which PFPC (a) issues and redeems Shares, (b) addresses and
mails all communications by the Portfolio to record owners of Shares, 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 classes of the Fund. 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 via third
parties and electronically relayed 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
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<PAGE>
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 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 AGREEMENT. Pursuant to the terms of a distribution contract,
dated as of April 10, 1991, and supplement dated as of November 5, 1991 (the
"Distribution Contract"), entered into by the Distributor and the Fund with
respect to the Shares, and a Plan of Distribution for the Shares (the "Plan"),
both of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute the
Shares. 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 was most recently approved for continuation, as amended 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"), on July 10, 1996. The Plan was also approved by the shareholders
of the Class at a special meeting of shareholders held on June 10, 1992, 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 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 Shares
under the Plan shall not be materially increased without the affirmative vote of
the holders of a majority of the Shares; 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 period ended August 31, 1996, the Fund paid distribution fees
to the Distributor under the Plan for the Bradford Class in the aggregate amount
of $723,264, of which amount $630,766 was paid to dealers with whom the
Fund's Distributor had entered into dealer agreements
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<PAGE>
and $92,498 was retained by the Distributor and used to pay certain legal fees,
printing, postage, travel and entertainment, administrative and sales and
marketing expenses. During the same period, the Distributor waived no
distribution fees.
The Fund believes that the 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 Plans 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, and may purchase variable rate securities with
remaining maturities of 397 calendar day 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
intends to purchase only securities with remaining maturities of one year or
less, its portfolio turnover rate 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 the 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
does not 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
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<PAGE>
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 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
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<PAGE>
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 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 WEEKENDS AND 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 AS 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.
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<PAGE>
Such action may include redeeming shares in kind, selling portfolio securities
prior to maturity, reducing or withholding dividends, and utilizing a net asset
value per share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average portfolio maturity of
90 days or less, will not purchase any instrument with a deemed maturity under
Rule 2a-7 of the 1940 Act greater than 397 calendar days, will limit portfolio
investments to those United States dollar-denominated instruments that PIMC
determines are eligible securities and 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 current and effective yields of Shares of the
Class are computed using standardized methods required by the SEC. The
annualized yield for Shares of the Class is 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 ended August 31, 1996 for the
Bradford Class of the Municipal Money Market Portfolio was 2.81%. The
effective yield for the same period for the Bradford Class of the Municipal
Money Market Portfolio was 2.85%. The tax equivalent yield for the same period
for the Bradford Class of the Municipal Money Market Portfolio was 3.90%
(assuming an income tax rate of 28%).
Yield may fluctuate daily and does not provide a basis for determining
future yields. Because the yield of Shares of the Class will
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<PAGE>
fluctuate, it cannot be compared with yields on savings account or other
investment alternatives that provide an agreed to or guaranteed fixed yield for
a stated period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market instruments
in which the Portfolio invests, 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 the Portfolio should continue to hold the
obligation.
From time to time, in advertisements or in reports to shareholders, the
yield of Shares of the Class 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 Shares of the Class 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 Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Portfolio or its 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
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<PAGE>
exempt from Federal income tax on its net investment income and realized capital
gains which it distributes to shareholders, provided that it distributes an
amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the 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
(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,
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<PAGE>
securities of other regulated investment companies, and securities of other
issuers (as to which the Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which the Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of the Portfolio's total assets may be invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which the Portfolio controls and which are engaged in the same or similar trades
or businesses (the "Asset Diversification Requirement").
The Portfolio is designed to provide investors with current tax-exempt
interest income. Exempt interest dividends distributed to shareholders of the
Portfolio are not included in the shareholder's gross income for regular Federal
income tax purposes. In order for the Portfolio to pay exempt interest dividends
during any taxable year, at the close of each fiscal quarter at least 50% of the
value of the Portfolio must consist of exempt interest obligations.
All shareholders required to file a Federal income tax return are required
to report the receipt of exempt interest dividends and other exempt interest on
their returns. Moreover, while such dividends and interest are exempt from
regular Federal income tax, they may be subject to alternative minimum tax as
described in the Prospectus. By operation of the adjusted current earnings
alternative minimum tax adjustment, exempt interest income received by certain
corporations may be taxed at an effective rate of 15%. In addition corporate
investors should note that under the Superfund Amendments and Reauthorization
Act of 1986, an environmental tax is imposed for taxable years beginning after
1986 and before 1996 at the rate of 0.12% on the excess of the modified
alternative minimum taxable income of corporate taxpayers over $2 million,
regardless of whether such taxpayers are liable for alternative minimum tax.
Receipt of exempt interest dividends may result in collateral Federal income tax
consequences to certain other taxpayers, including financial institutions,
property and casualty insurance companies, individual recipients of Social
Security or Railroad Retirement benefits, and foreign corporations engaged in a
trade or business in the United States. Prospective investors should consult
their own tax advisors as to such consequences.
The Portfolio may not be an appropriate investment for entities which are
"substantial users" of facilities financed by private activity bonds or "related
persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations
to include a nonexempt person who regularly uses a part of such facilities in
his trade or business and (a) whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenue derived by all users of such facilities, (b) who occupies more than 5%
of the entire usable area of such facilities, or (c) for whom such facilities or
a part thereof were specifically constructed, reconstructed or acquired.
"Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
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<PAGE>
The 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.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Portfolio is not deductible for income tax purposes if (as
expected) the Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by the Portfolio from
investments in debt securities (other than interest on tax-exempt Municipal
Obligations) 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. Although the
Portfolio generally does not expect to receive net investment income other than
Tax-Exempt Interest and AMT Interest, up to 20% of the net assets of the
Portfolio may be invested in Municipal Obligations that do not bear Tax-Exempt
Interest or AMT Interest, and any taxable income recognized by the Portfolio
will be distributed and taxed to its shareholders.
While the Portfolio does not 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 taxable
year.
Investors should note that changes made to the Code by the Tax Reform Act
of 1986 and subsequent legislation have not entirely eliminated the distinctions
in the tax treatment of capital gain and ordinary income distributions. The
nominal maximum marginal rate on ordinary income for individuals, trusts and
estates is currently 31%, but for individual taxpayers whose adjusted gross
income exceeds certain threshold amounts (that differ
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depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed 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 one-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, the Portfolio does not
anticipate incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and remit to the
United States Treasury 31% of dividends (other than exempt interest 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
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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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<PAGE>
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, 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 COMMON STOCK, 100 million shares are classified as
Class EE COMMON STOCK, 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 GLOBAL TELECOM), 100
MILLION SHARES ARE CLASSIFIED AS CLASS QQ COMMON STOCK (BOSTON PARTNERS
INSTITUTIONAL LARGE CAP), 100 MILLION SHARES ARE
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CLASSIFIED AS CLASS RR COMMON STOCK (BOSTON PARTNERS INVESTOR LARGE CAP), 100
MILLION SHARES ARE CLASSIFIED 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 R Common
Stock constitute the Bradford 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 Cash Preservation Family represents interests in
the Money Market and Municipal Money Market Portfolios; the Sansom Street Family
represents interests in the Money Market,
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<PAGE>
Municipal Money Market and Government Obligations Money Market Portfolios; the
Bedford Family represents interests in the Money Market, Municipal Money Market,
Government Obligations Money Market and New York Municipal 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 INTERESTS IN ONE NON-MONEY
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
the portfolio only if approved by the holders of a majority of the outstanding
voting securities of the 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
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vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll, 1735 Market
Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as counsel to the
Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle & Reath, 1100
Philadelphia National Bank Building, Broad and Chestnut Streets, Philadelphia,
Pennsylvania 19107, serves as counsel to the Fund's independent directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven Penn Center,
Philadelphia, Pennsylvania 19103, serves as the Fund's independent accountants.
The Fund's financial statements which appear in this Statement of Additional
Information have been audited by Coopers & Lybrand L.L.P., as set forth in their
report, which also appears in this Statement of Additional Information, and have
been included herein in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
CONTROL PERSONS. As of 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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
4943 King Arthur Drive
Erie, PA 16506
JOHN Robert Estrada and 16.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
ERIC Levine and Linda & Howard Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for Carolina 15.7
(Class V) Power & Light Co. Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
161 Forbes Road, Suite 201
Braintree, MA 02184
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
Carlisle, KY 40311
</TABLE>
-34-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
U S EQUITY INVESTMENT PORTFOLIO LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market Janney Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
JANNEY Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government Janney Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT OBLIGATIONS Philadelphia, PA 19103-1675
MONEY)
JANNEY Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
-36-
<PAGE>
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.
-37-
<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
A-1
<PAGE>
determined to possess overwhelming safety characteristics are given a plus (+)
designation.
The following summarizes the two highest ratings used by Moody's for
short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of the best
quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of high quality
with margins of protection ample although not as large as in the preceding
group.
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
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
MUNICIPAL BONDS--99.8%
ALABAMA--0.7%
Alabama Special Care Facilities
Authority St. Vincent's Daughters of
Charity MB(AA, Aa)(DOUBLE DAGGER)
4.000% 11/01/96 ....................... $ 1,735 $1,736,028
Livingston IDR Toin Corp USA Project
DN / (Ind. Bank of Japan LOC)
[A-1+, VMIG-1](DAGGER)
4.150% 09/07/96 ....................... 1,000 1,000,000
----------
2,736,028
----------
ALASKA--0.5%
Alaska Industrial Development & Export
Authority RB Series 1984-5
(LOC-Seattle First National Bank)
DN [A-1](DAGGER)
3.600% 09/07/96 ....................... 2,045 2,045,000
----------
ARIZONA--1.8%
Flagstaff IDA DN / (LOC-Wells Fargo)
[A, A-1](DAGGER)
3.550% 09/07/96 ....................... 7,755 7,755,000
----------
ARKANSAS--0.4%
Arkansas State Development Authority
Health Care Facility Sisters of
Mercy DN/ (ABM-AMRO Bank N.V. LOC)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,700 1,700,000
----------
CALIFORNIA--14.8%
California Pollution Control DN / (Society
General LOC) [A-1+](DAGGER)
3.150% 09/30/96 ....................... 2,000 2,000,000
California Pollution Control Finance
Authority (Pacific Gas & Electric Co.
Project) Series 1996 C DN (Bank of
America LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 8,200 8,200,000
Los Angeles County Housing Authority
Malibu Meadows Project
Series A DN (LOC- Sumitomo Bank)
[A-1](DAGGER)
3.500% 09/07/96 ....................... 4,100 4,100,000
PAR
(000) VALUE
------- -----------
CALIFORNIA--(CONTINUED)
Los Angeles County
Series 1996 A TRAN
(Credit Suisse LOC) [SP-1+,
MIG-1](DOUBLE DAGGER)
4.500% 06/30/97 .............................. $10,315 $10,371,569
Oakland (LOC- Natwest PLC) DN(DAGGER)
3.750% 09/07/96 .............................. 11,600 11,600,000
San Bernardino County
TRAN / (Landesbank Hessen-
Thuringen LOC) [SP-1+, MIG-1]
4.500% 06/30/97 .............................. 5,000 5,024,890
Southeast Resource Recovery Facility
Authority Lease RB DN [A-1, VMIG-1](DAGGER)
3.550% 09/07/96 .............................. 7,500 7,500,000
State of California 1996-97 RAN
[SP-1+, MIG-1]
4.500% 06/30/97 .............................. 7,000 7,029,519
State of California RAN Series C-5 /
(Bank of America LOC) [A-1+, MIG]
3.850% 09/07/96 .............................. 1,000 1,000,000
Washington Township Hospital District
Alemeda County DN / (Ind. Bank of
Japan LOC)(DAGGER)
3.450% 09/07/96 .............................. 5,300 5,300,000
-----------
62,125,978
-----------
COLORADO--1.8%
Colorado State General Fund Revenue
Series 1996 A TRAN [SP-1+, MIG-1]
4.500% 06/27/97 .............................. 5,000 5,025,623
Moffat County DN [A-1+, P-1](DAGGER)
3.550% 09/07/96 .............................. 2,400 2,400,000
-----------
7,425,623
-----------
CONNECTICUT--0.7%
Connecticut State of Special Assessment
Unemployment Compensation
Advance Fund Revenue (Connecticut
Unemployment Project)
Series 1993 C MB (FGIC Insurance)
[A-1+, VMIG-1](DOUBLE DAGGER)
3.900% 07/01/97 .............................. 3,000 3,000,000
-----------
See Accompanying Notes to Financial Statements.
3
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
DELAWARE--0.7%
The Delaware Economic Development
Authority Gas Facilities Refunding
(Delmarva Power & Light Project)
Series 1993 C (Delmarva Power &
Light Corporate Obligation)
RB DN [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... $ 3,000 $ 3,000,000
-----------
FLORIDA--1.4%
Florida Housing Finance Agency
DN / (Wells Fargo Bank LOC) [A-1](DAGGER)
3.850% 09/30/96 ......................... 3,000 3,000,000
Indian River County Hospital District
Sunhealth Network MB / (Kredietbank
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.700% 10/08/96 ......................... 3,000 3,000,000
-----------
6,000,000
-----------
GEORGIA--3.6%
Atlanta Urban Residential Finance
Authority RB DN (Residential
Construction -- Summerhill Project) /
(First Union National Bank of North
Carolina LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
Brunswick and Glynn Development
Authority Sewage Facility RB DN for
Georgia-Pacific Corp. Project
(LOC-Commerce Bank)
Series 1996 [Aa2](DAGGER)
3.650% 09/07/96 ......................... 3,000 3,000,000
Carrollton Payroll Development
Authority Certificates RAN [Aa3]
3.650% 09/07/96 ......................... 6,000 6,000,000
Forsyth County IDA RB for American
Boa, Inc. Project (LOC- Dresdner
Bank A.G.) DN(DAGGER)
3.550% 09/07/96 ......................... 3,000 3,000,000
-----------
15,000,000
-----------
PAR
(000) VALUE
------- ------------
ILLINOIS--8.8%
Chicago O'Hare International Airport DN
(American Airlines) Series C / (LOC-
Royal Bank of Canada) [VMIG-1](DAGGER)
3.750% 09/01/96 ....................... $ 1,200 $ 1,200,000
Health Facility Authority DN (Central
Health Care and Northwest
Community Hospital) / (Sumitomo
Bank LOC) [VMIG-1](DAGGER)
3.450% 09/07/96 ....................... 1,545 1,545,000
Illinois Development Finance Authority
CHS Acquisition Corp. Project DN /
(ABM-AMRO Bank N.V. LOC) [A-1+](DAGGER)
3.850% 09/07/96 ....................... 5,035 5,035,000
Illinois Development Finance Authority
RB DN (Chicago Symphony
Orchestra Project) / (Northern Trust
LOC) [A-1, VMIG-1](DAGGER)
3.500% 09/07/96 ....................... 8,400 8,400,000
Illinois Health Facility Authority Carle
Foundation Project DN / (Northern
Trust LOC) [VMIG-1](DAGGER)
3.550% 09/07/96 ....................... 2,600 2,600,000
Illinois Housing Development Authority
Multifamily Housing Bonds DN /
(Landesbank Hessen-Thuringen LOC)
[A-1+](DAGGER)
3.500% 09/07/96 ....................... 1,000 1,000,000
Illinois Housing Development Authority
Series C-2 DN / (Society General LOC)
[VMIG-1](DAGGER)
3.450% 09/03/96 ....................... 2,200 2,200,000
Illinois Student Loan Authority
Community Student Loan RB DN /
(Bank of America LOC) [VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 7,800 7,800,000
O'Hare International Airport Special
Facility RB DN / (Society General
LOC) [Aa2, VMIG-1](DAGGER)
3.600% 09/07/96 ....................... 5,800 5,800,000
Southwestern Development Authority
(Shell Oil Co. Wood River Project)
Series 1995 MB [Aa2,
VMIG-1](DOUBLE DAGGER)
3.950% 09/01/96 ....................... 1,375 1,375,000
-----------
36,955,000
-----------
See Accompanying Notes to Financial Statements.
4
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- ----------
INDIANA--9.5%
Bremen IDA RB Series 1996 A
Universal Bearings, Inc. Project
Private Placement DN / (Society
National Bank of Cleveland
LOC)(DAGGER)
3.800% 09/07/96 ........................ $ 5,000 $5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center I
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 2,900 2,900,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center II,
Project) / (LOC-Society National
Bank of Cleveland) [A-1+](DAGGER)
3.800% 09/07/96 ........................ 5,000 5,000,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center III
Project) / (LOC-Society National Bank of
Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 4,500 4,500,000
Indiana Development Finance Authority
IDA RB DN (Enterprise Center IV
Project) / (LOC-Society National
Bank of Cleveland) [A-1+, AA-](DAGGER)
3.800% 09/07/96 ........................ 2,600 2,600,000
Indiana Health Facility Authority
Daughters of Charity for St. Mary's
Medical DN [AA, Aa](DAGGER)
4.000% 11/01/96 ........................ 840 840,497
La Porte County Economic Development
RB DN (Pedcor Investments --
Woodland Crossing) / (Federal Home
Loan Bank LOC) [VMIG-1, Aaa](DAGGER)
3.600% 09/07/96 ........................ 2,000 2,000,000
Orleans Economic Development RB for
Almana Limited Liability Co. Project
Series 1995 (LOC-National Bank of
Detroit) DN(DAGGER)
3.650% 09/07/96 ........................ 5,400 5,400,000
Portage, City of Economic Development
RB DN (Breckenridge Apartments
Project) / (Comerica Bank Detroit LOC)
[A-1](DAGGER)
3.650% 09/07/96 ........................ 4,650 4,650,000
PAR
(000) VALUE
------- -----------
INDIANA--(CONTINUED)
South Bend Redevelopment Authority
(College Football Hall of Fame
Project) Series DN (Fuji Bank LOC)
[VMIG-1](DAGGER)
4.000% 09/07/96 ...................... $ 4,100 $ 4,100,000
Tippencanoe DN / (Bank of
New York LOC) [Aa3, VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 3,000 3,000,000
-----------
39,990,497
-----------
IOWA--1.9%
Iowa Finance Authority
IDA RB DN (Sauer-Sundstrand Co.
Project) / (Bayerische LB Girozentrale
LOC) [P-1](DAGGER)
3.600% 09/07/96 ...................... 4,000 4,000,000
Iowa Finance Authority Tax-Exempt
Adjustable Mode IDA RB DN (Dixie
Bedding Co. Project) Series 1995 /
(Wachovia LOC) [Aa2](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
Osceola IDA RB (Babson Brothers Co.
Projects) Series 1986 DN / (Bank of
New York LOC) [VMIG-1](DAGGER)
3.700% 09/07/96 ...................... 1,100 1,100,000
-----------
8,100,000
-----------
KANSAS--2.8%
Burlington PCR RB MB (Kansas City
Power & Light Company) /
(Deutsche Bank LOC)
[A-1+, P-1](DOUBLE DAGGER)
3.650% 10/10/96 ...................... 2,000 2,000,000
Butler County Solid Waste Disposal
Facilities RB DN [VMIG-1, A1](DAGGER)
4.000% 09/07/96 ...................... 2,000 2,000,000
Lawrence County Project IDA RB
Series A RAM Co. Project /
(Wachovia LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/05/96 ...................... 2,125 2,125,000
Shawnee IDA RB Thrall Enterprises, Inc.
Project DN (LOC-ABM-AMRO
Bank N.V.)[A-1+](DAGGER)
3.900% 09/07/96 ...................... 5,700 5,700,000
-----------
11,825,000
-----------
See Accompanying Notes to Financial Statements.
5
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
KENTUCKY--5.5%
Clark County PCR RB MB
(East Kentucky Power Cooperative,
Inc.) [A-1+, VMIG-1](DOUBLE DAGGER)
3.400% 10/15/96 .......................... $ 2,000 $ 2,000,000
Hopkinsville IDA RB Douglas Autotech
Corp. Project Series 1995 DN /
(Ind. Bank of Japan LOC) [A, A-1](DAGGER)
4.150% 09/07/96 .......................... 7,700 7,700,000
Hopkinsville RB (American Precision
Machinery) Series 1990 DN /
(Mitsubishi Bank LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 .......................... 3,600 3,600,000
Maysville, City of Solid Waste Disposal
Facilities RB MB [A-1, P-1](DOUBLE DAGGER)
3.700% 09/12/96 .......................... 10,000 10,000,000
-----------
23,300,000
-----------
LOUISIANA--3.4%
Ascension Parish RB DN BASF
Corp. [P-1, Aa3](DAGGER)
3.550% 09/07/96 .......................... 2,800 2,800,000
East Baton Rouge Mortgage Finance
Authority MB Single Family
Mortgage Purchase Bonds /
(FNMA LOC) [VMIG-1](DOUBLE DAGGER)
3.400% 10/03/96 .......................... 2,910 2,910,000
East Baton Rouge Parish Pacific Corp.
Project DN / (Ind. Bank of
Japan LOC) [Aaa, VMIG-1](DAGGER)
3.850% 09/07/96 .......................... 6,500 6,500,000
Saint Charles PCR Series 1991 Shell
Oil Co. DN [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 .......................... 1,900 1,900,000
-----------
14,110,000
-----------
MARYLAND--3.2%
Howard County Bluffs at Clary's
Forest Apartment Facility
Series 1995 DN /
(FNB Maryland LOC) [A-1](DAGGER)
3.900% 09/07/96 .......................... 5,800 5,800,000
PAR
(000) VALUE
------- -----------
MARYLAND--(CONTINUED)
Maryland State Community
Development Adminstration
Department Single Family Housing
Bonds Project -- 2nd Series MB
[VMIG-1](DOUBLE DAGGER)
3.550% 10/01/96 ........................ $ 7,835 $ 7,835,000
-----------
13,635,000
-----------
MICHIGAN--0.6%
Michigan State Hospital Finance
Authority Daughters of Charity MB
[AA, Aa](DOUBLE DAGGER)
4.000% 11/01/96 ........................ 875 875,518
Michigan State Strategic Fund Limited
Obligation RB DN / (Comerica Bank
Detroit LOC) [A-1, P-1](DAGGER)
3.650% 09/07/96 ........................ 800 800,000
Northville IDA (Thrifty Northville Project)
Series 1984 DN / (LOC-FNB Chicago)
[P-1](DAGGER)
3.525% 09/07/96 ........................ 1,000 1,000,000
-----------
2,675,518
-----------
MISSOURI--3.3%
City of Berkeley IDA RB Exempt Facility
DN (St. Louis Air Cargo Services, Inc.
Project) / (LOC-Sumitomo Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 5,200 5,200,000
City of Kansas IDA RB (Mid-America
Health Services, Inc. Project)
Series 1984 DN / (Bank of New York
LOC) [A-1](DAGGER)
3.650% 09/07/96 ........................ 1,100 1,100,000
Kansas City IDA Demand Exempt Facility
RB (K.C. Air Cargo Services, Inc.
Project) DN / (LOC-Mellon Bank)
[A-1](DAGGER)
3.750% 09/07/96 ........................ 7,600 7,600,000
-----------
13,900,000
-----------
See Accompanying Notes to Financial Statements.
6
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
NEBRASKA--0.9%
Lancaster Sun-Husker Foods, Inc.
Project DN / (Bank of Tokyo LOC)
[A-1+](DAGGER)
4.150% 09/07/96 ......................... $ 3,800 $ 3,800,000
-----------
NEVADA--0.9%
Clark County Airport System Subordinate
Lien RB DN Series 1995 A-2 / (Toronto
Dominion LOC) [A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ......................... 1,680 1,680,000
Clark County IDA RB DN / (Swiss Bank
LOC) [A-1+, VMIG-1](DAGGER)
3.950% 09/01/96 ......................... 2,300 2,300,000
-----------
3,980,000
-----------
NEW HAMPSHIRE--4.8%
Health and Higher Education Facility
Authority Veteran Hospital Assoc.
DN Series 1985 E / (AMBAC
Insurance) [A-1+](DAGGER)
3.400% 09/07/96 ......................... 200 200,000
New Hampshire Higher Education &
Health Facility DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 600,000
New Hampshire State Housing Finance
Authority Multifamily RB Countryside
Project DN / (General Electric Capital
Corp. LOC) [VMIG-1](DAGGER)
3.650% 09/07/96 ......................... 14,700 14,700,000
New Hampshire State Housing Finance
Authority Single Family Housing
Bond MB / (FGIC Insurance)
[VMIG-1](DOUBLE DAGGER)
3.650% 01/15/97 ......................... 4,500 4,500,000
-----------
20,000,000
-----------
NORTH CAROLINA--0.1%
Mecklenburg County Industrial Facility
and Pollution Control Financing
Authority (Edgcomb Metals Co.
Project) Series 1984 DN / (Banque
Nationale de Paris LOC)(DAGGER)
3.500% 09/07/96 ......................... 300 300,000
-----------
PAR
(000) VALUE
------- -----------
NORTH DAKOTA--0.8%
North Dakota Housing Finance Agency
Housing Finance Program Bonds
Home Mortgage Finance Program
DN / (FGIC Insurance) [VMIG-1](DAGGER)
3.850% 04/03/97 ........................ $ 3,500 $ 3,500,000
-----------
OKLAHOMA--0.5%
Oklahoma Development Finance
Authority Shawnee Funding Limited
DN / (Bank of Nova Scotia LOC)(DAGGER)
3.650% 09/07/96 ........................ 2,000 2,000,000
-----------
PUERTO RICO--0.1%
Puerto Rico Industrial Medical Health
Education and Environmental PCR
(Anna G. Mendez Project) DN /
(LOC-Bank of Tokyo) [A-1](DAGGER)
3.550% 09/07/96 ........................ 600 600,000
-----------
RHODE ISLAND--0.5%
Rhode Island Housing & Mortgage
Finance Corp. Convertible Home
Ownership Opportunity Bonds
Series 19 D MB / (Society General
LOC) [A-1+, VMIG-1](DOUBLE DAGGER)
3.550% 01/30/97 ........................ 2,000 2,000,000
-----------
SOUTH CAROLINA--3.7%
Anderson County IDA RB for Culp, Inc.
Project DN / (Wachovia LOC)(DAGGER)
3.600% 09/07/96 ........................ 6,580 6,580,000
Marlboro County Solid Waste Disposal
Facilities RB DN (Willamette Industries,
Inc. Project) Series 1995 (LOC-
Deutsche Bank A.G.) [A-1](DAGGER)
4.050% 09/07/96 ........................ 9,000 9,000,000
-----------
15,580,000
-----------
TENNESSEE--2.5%
Memphis General Improvement DN /
(LOC-West Deutsche Landesbank)
[A-1+, VMIG-1](DAGGER)
3.600% 09/07/96 ........................ 1,000 1,000,000
See Accompanying Notes to Financial Statements.
7
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
TENNESSEE--(CONTINUED)
Metropolitan Nashville Airport Authority,
Airport Improvement Series 1993 RB
DN / (FGIC Insurance)
[A-1+, VMIG-1](DAGGER)
3.500% 09/04/96 ...................... $ 1,100 $ 1,100,000
Montgomery County Public Building
Authority County Loan Pool G.O. DN /
(NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ...................... 2,400 2,400,000
Oak Ridge Municipal Solid Waste
Disposal Facility Bonds
Series 1996 M4 Environmental
Project DN / (Sunbank LOC)(DAGGER)
3.650% 09/07/96 ...................... 6,000 6,000,000
-----------
10,500,000
-----------
TEXAS--6.9%
Angelina and Neches River Authority
Solid Waste Disposal RB MB
[A-1, P-1](DOUBLE DAGGER)
3.800% 10/11/96 ...................... 5,300 5,300,000
Brazos River Harbor Navigation
(Dow Chemical Co. Project)
Series 1988 DN [P-1](DAGGER)
3.700% 10/11/96 ...................... 2,000 2,000,000
Harris County Health Facilities
Development Corp. Hospital
RB DN [A-1+](DAGGER)
3.750% 09/01/96 ...................... 7,200 7,200,000
San Antonio Housing Finance Corp.
(Wellington Place Apartments)
(LOC-Banc One) Series 1995
A DN [A-1+, AA](DAGGER)
3.600% 09/07/96 ...................... 3,000 3,000,000
State of Texas TAN [SP-1+, MIG]
4.750% 08/29/97 ...................... 7,000 7,053,017
Texas State Veterans Housing
Authority MB(DOUBLE DAGGER)
3.900% 11/06/96 ...................... 4,000 4,000,000
Travis County Housing Finance
Authority MB(DOUBLE DAGGER)
4.000% 11/01/96 ...................... 430 430,255
-----------
28,983,272
-----------
PAR
(000) VALUE
------- -----------
UTAH--2.0%
Intermountain Power Agency Power
Supply Refunding Series 1985 E (Spa-
Bank of America) RB MB / (Morgan
Guaranty LOC) [A-1, VMIG-1](DOUBLE DAGGER)
3.930% 06/16/97 .......................... $ 2,000 $2,000,000
Salt Lake Airport RB DN (LOC-Credit
Suisse) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 2,300 2,300,000
Utah State Board of Regents Student
Loan Revenue Series C RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 3,400 3,400,000
Utah State Board of Regents Student
Loan Revenue Series L RB DN /
(Dresdner Bank LOC) [A-1+, VMIG-1](DAGGER)
3.550% 09/07/96 .......................... 900 900,000
----------
8,600,000
----------
VERMONT--0.2%
Vermont Educational & Health Buildings
Agency Hospital RB (AMBAC Insurance)
DN [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 .......................... 855 855,000
----------
VIRGINIA--5.7%
Alexandria IDA Adjustable Tender
Resource Recovery (Alexandria/
Arlington Waste-to-Energy Facility)
Series 1986 A DN / (Swiss Bank LOC)
[VMIG-1, A-1+](DAGGER)
3.900% 09/01/96 .......................... 200 200,000
Alexandria Redevelopment & Housing
Authority Multi-Family Housing
Series A DN [A-1](DAGGER)
3.550% 09/07/96 .......................... 3,100 3,100,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 B DN / (AMBAC
Insurance ) [A-1+, VMIG-1](DAGGER)
3.300% 09/07/96 .......................... 1,700 1,700,000
Capital Region Airport Commission
(Richmond International Airport
Project) Series 1995 C DN / (AMBAC
Insurance) [VMIG-1, A-1+](DAGGER)
3.450% 09/07/96 .......................... 2,500 2,500,000
See Accompanying Notes to Financial Statements.
8
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONTINUED)
AUGUST 31, 1996
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Culpeper Town IDA Residential Care
Facility RB DN / (NCNB LOC) [A-1](DAGGER)
3.550% 09/07/96 ......................... $ 500 $ 500,000
Fairfax County IDA DN Series 1988 C /
(LOC-Credit Suisse) [A-1+](DAGGER)
3.650% 09/07/96 ......................... 200 200,000
King George County IDA (Birchwood
Power Partners, L.P. Project)
Series 1995 DN / (Credit Suisse LOC)
[A-1+](DAGGER)
4.000% 09/07/96 ......................... 1,300 1,300,000
Louisa County IDA Pooled Financing
Series 1995 DN (LOC-Nations Bank)
[A-1](DAGGER)
3.500% 09/07/96 ......................... 2,500 2,500,000
Lynchburg Hospital RB Federal Housing
Authority Mid-Atlantic
Series 1985 E DN / (AMBAC Insurance)
[A-1](DAGGER)
3.350% 09/07/96 ......................... 800 800,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 C DN /
(AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 500 500,000
Lynchburg IDA Hospital Facilities
(Mid-Atlantic States Capital Asset
Finance Project) Series 1985 G DN
(AMBAC Insurance) [VMIG-1](DAGGER)
3.350% 09/07/96 ......................... 7,900 7,900,000
Peninsula Port Authority Port Facility
(Shell Coal and Terminal Co.)
Series 1987 DN (AMBAC Insurance)
[Aaa, A-1+](DAGGER)
3.800% 09/01/96 ......................... 1,000 1,000,000
Peninsula Port Authority Dominion
Terminal Series 1987 D MB / (Barclays
Bank LOC) [A1+, P-1](DOUBLE DAGGER)
3.850% 09/01/96 ......................... 800 800,000
PAR
(000) VALUE
------- -----------
VIRGINIA--(CONTINUED)
Peninsula Port IDA RB (Allied Signal, Inc.
Project) Series 1993 (Allied Signal
Corp. Obligation) DN [A-1](DAGGER)
3.650% 09/07/96 ............................ $ 1,000 $ 1,000,000
-----------
24,000,000
-----------
WASHINGTON--1.2%
Port of Seattle IDA DN (Alaska Airlines
Project) / (Bank of NY LOC) [A-1](DAGGER)
3.600% 09/07/96 ......................... 4,580 4,580,000
Washington State Adjustable Rate G.O.
Bonds DN / (Landesbank Hessen LOC)
[A-1+, VMIG-1](DAGGER)
3.500% 09/07/96 ......................... 400 400,000
-----------
4,980,000
-----------
WEST VIRGINIA--2.5%
Grant County Municipal Solid Waste
MB [VMIG-1](DOUBLE DAGGER)
3.850% 09/10/96 ......................... 5,000 5,000,000
Marshall County IDA US/Canada Project
DN / (Harris Trust & Savings Bank
LOC) [A-1+, AA-](DAGGER)
3.650% 09/07/96 ......................... 3,500 3,500,000
West Virginia Hospital Finance Authority
Hospital RB DN (VHA Mid-Atlantic
States, Inc. Capital Asset)
(AMBAC Insurance) [A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 600 1,200,000
West Virginia Hospital Finance Authority
Hospital RB DN (Mid-Atlantic
Capital Finance Project) Series 1985
C DN (AMBAC Insurance)
[A-1+, VMIG-1](DAGGER)
3.450% 09/07/96 ......................... 700 700,000
-----------
10,400,000
-----------
WISCONSIN--1.1%
Carlton DN Wisconsin Power &
Light Project [P-1](DAGGER)
3.600% 09/07/96 ......................... 4,800 4,800,000
-----------
See Accompanying Notes to Financial Statements.
9
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.8%
(Cost $420,156,916*) $420,156,916
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.2% 731,430
------------
NET ASSETS (Applicable to
202,009,609 Bedford shares
129,398,582 Bradford shares
115,765 Cash Preservation shares
89,426,172 Janney Montgomery
Scott shares, 5,143 RBB shares
and 800 other shares)--100.0% $420,888,346
============
NET ASSET VALUE, offering and
redemption price per share
($420,888,346 (DIVIDE) 420,956,071) $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Demand Notes -- The interest rate shown is the rate as of
August 31, 1996 and the maturity shown is the longer of the next
interest readjustment date or the date the principal amount shown can
be recovered through demand.
(DOUBLE DAGGER) Put Bonds -- Maturity date is the put date.
The Moody's Investor Service, Inc. and Standard and Poor's Ratings Group's
ratings indicated are the most recent ratings available at August 31, 1996.
These ratings have not been audited by the Independent Accountants, and,
therefore, are not covered by the report of Independent Accountants.
INVESTMENT ABBREVIATIONS
BAN.................................Bond Anticipation Note
DN.............................................Demand Note
GO.....................................General Obligations
LOC.......................................Letter of Credit
IDA.......................Industrial Development Authority
MB..........................................Municipal Bond
PCR..............................Pollution Control Revenue
RAN..............................Revenue Anticipation Note
RAW..........................Revenue Anticipation Warrants
RB............................................Revenue Bond
TAN..................................Tax Anticipation Note
TECP...........................Tax Exempt Commercial Paper
TRAN.....................Tax and Revenue Anticipation Note
See Accompanying Notes to Financial Statements.
10
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
Investment Income
Interest ................................................... $15,900,230
-----------
Expenses
Investment advisory fees ................................... 1,409,660
Administration fees ........................................ 428,209
Distribution fees .......................................... 2,427,986
Directors' fees ............................................ 7,715
Custodian fees ............................................. 88,191
Transfer agent fees ........................................ 291,739
Legal fees ................................................. 17,721
Audit fees ................................................. 12,514
Registration fees .......................................... 192,999
Insurance expense .......................................... 9,056
Printing fees .............................................. 72,100
Miscellaneous .............................................. 387
-----------
4,958,277
Less fees waived ........................................... (1,236,642)
Less expense reimbursement by advisor ...................... (17,576)
-----------
Total expenses ........................................ 3,704,059
-----------
Net investment income ...................................... 12,196,171
-----------
Realized loss on investments ............................... (674)
-----------
Net increase in net assets resulting from operations ....... $12,195,497
===========
See Accompanying Notes to Financial Statements.
11
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................ $ 12,196,171 $ 9,691,756
Net gain (loss) on investments ................................... (674) 7,009
------------ ------------
Net increase in net assets resulting from operations ............. 12,195,497 9,698,765
------------ ------------
Distributions to shareholders:
Dividends to shareholders from net investment income:
Bedford shares ................................................... (5,960,711) (5,717,451)
Bradford Shares .................................................. (3,611,114) (3,266,535)
Cash Preservation shares ......................................... (3,746) (5,648)
Janney Montgomery Scott shares ................................... (2,620,457) (701,975)
RBB shares ....................................................... (143) (147)
------------ ------------
Total distributions to shareholders ............................ (12,196,171) (9,691,756)
------------ ------------
Net capital share transactions ..................................... (1,864,843) 140,043,103
------------ ------------
Total increase (decrease) in net assets ............................ (1,865,517) 140,050,112
Net Assets:
Beginning of year ................................................ 422,753,863 282,703,751
------------ ------------
End of year ...................................................... $420,888,346 $422,753,863
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
12
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FOR THE FOR THE JANUARY 10, 1992
YEAR YEAR YEAR YEAR (COMMENCEMENT OF
ENDED ENDED ENDED ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- -------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- -------- ---------
Income from investment operations:
Net investment income ................ 0.0288 0.0297 0.0195 0.0195 0.0154
--------- --------- --------- -------- ---------
Total from investment operations ... 0.0288 0.0297 0.0195 0.0195 0.0154
--------- --------- --------- -------- ---------
Less distributions
Dividends (from net investment income) (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
--------- --------- --------- -------- ---------
Total distributions ................ (0.0288) (0.0297) (0.0195) (0.0195) (0.0154)
--------- --------- --------- -------- ---------
Net asset value, end of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ======== =========
Total Return ............................ 2.92% 3.01% 1.97% 1.96% 2.42%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ...... $ 129,399 $ 110,936 $ 100,089 $ 76,975 $ 69,586
Ratios of expenses to average
net assets .......................... .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)(b)
Ratios of net investment income
to average net assets ............... 2.88% 2.97% 1.95% 1.95% 2.40%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.12%, 1.14%, 1.11% and 1.16% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively, and 1.16% annualized for the
period ended August 31, 1992.
(b) Annualized.
(c) Financial Highlights relate soley to the Bradford Class of Shares within
the portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
13
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family, and the Bradford Family.
The Bradford Municipal Money Market Shares represent an interest in the
Municipal Money Market Portfolio, which is covered in this report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Portfolio seeks to maintain net asset value
per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have the portfolio continue to qualify for
and elect the tax treatment applicable to regulated investment companies
under the Internal Revenue Code and make the requisite distributions to its
shareholders which will be sufficient to relieve it from Federal income and
excise taxes.
E) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
14
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to an Investment Advisory Agreement, PNC Institutional Management
Corp. ("PIMC"), a wholly owned subsidiary of PNC Asset Management Group, Inc.,
which is in turn a wholly owned subsidiary of PNC Bank, National Association
("PNC Bank"), serves as investment advisor for the portfolio described herein.
PNC Bank serves as the sub-advisor for the Municipal Money Market Portfolio.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on the portfolio's average daily net
assets:
.35% of first $250 million of net assets;
.30% of next $250 million of net assets;
.25% of net assets in excess of $500 million.
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for this portfolio. For each class of shares within this portfolio,
the net advisory fee charged to each class is the same on a relative basis. For
the year ended August 31, 1996, advisory fees and waivers for the investment
portfolio were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
---------- ------------ --------
$1,409,660 $ (1,218,973) $190,687
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolio. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent.
PFPC may, at its discretion, voluntarily waive all or any portion of its
transfer agency fee for any class of shares. For the year ended August 31, 1996,
transfer agency fees and waivers for each class of shares within the investment
portfolio were as follows:
<TABLE>
<CAPTION>
GROSS NET
TRANSFER AGENCY TRANSFER AGENCY
FEE WAIVER FEE
--------------- -------------- ---------------
<S> <C> <C> <C>
Bedford Class $ 104,373 $ -- $ 104,373
Bradford Class 59,772 -- 59,772
Cash Preservation Class 8,783 (8,303) 480
Janney Montgomery Scott Class 109,422 -- 109,422
RBB Class 9,389 (9,366) 23
--------- --------- ---------
Total $ 291,739 $ (17,669) $ 274,070
========= ========= =========
</TABLE>
15
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
In addition, PFPC serves as administrator for the Municipal Money Market
Portfolio. The administration fee is computed daily and payable monthly at an
annual rate of .10% of the Portfolio's average daily net assets. For the year
ended August 31, 1996, administration fee for the portfolio was as $428,209.
The Fund, on behalf of each class of shares within this portfolio, has
adopted Distribution Plans pursuant to Rule 12b-1 under the Investment Company
Act of 1940, as amended, and has entered into Distribution Contracts with
Counsellors Securities Inc. ("Counsellors"), which provide for each class to
make monthly payments based on average net assets, to Counsellors of up to .65%
on an annualized basis for the Bedford, Bradford, Cash Preservation, Janney
Montgomery Scott and RBB Classes and up to .20% on an annualized basis for the
Sansom Street Class.
For the year ended August 31, 1996, distribution fees for each class were
as follows:
DISTRIBUTION
FEE
--------------
Bedford Class $ 1,139,416
Bradford Class 723,264
Cash Preservation Class 531
Janney Montgomery Scott Class 564,754
RBB Class 21
-----------
Total $ 2,427,986
===========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. For the year ended August 31, 1996, there were no
service organization fees for the Municipal Money Market Portfolio.
16
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1.00 per capital share) for each year
were as follows:
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
---------------- ---------------
VALUE VALUE
-------------- --------------
<S> <C> <C>
Shares sold:
Bedford Class $1,022,457,772 $1,104,088,188
Bradford Class 479,401,891 474,166,249
Cash Preservation Class 171,907 175,548
Janney Montgomery Scott Class 408,374,271 208,067,881
RBB Class 69,480 5,004
Shares issued in reinvestment of dividends:
Bedford Class 5,847,767 5,576,408
Bradford Class 3,506,714 3,126,860
Cash Preservation Class 3,515 5,478
Janney Montgomery Scott Class 2,602,869 662,565
RBB Class 143 146
Shares repurchased:
Bedford Class (1,024,790,222) (1,093,651,142)
Bradford Class (464,445,579) (466,448,018)
Cash Preservation Class (220,929) (220,601)
Janney Montgomery Scott Class (434,775,023) (95,506,391)
RBB Class (69,419) (5,072)
-------------- --------------
Net increase (decrease) $ (1,864,843) $ 140,043,103
============== ==============
Bradford Shares authorized 500,000,000 500,000,000
============== ==============
</TABLE>
17
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
MUNICIPAL
MONEY MARKET
PORTFOLIO
-------------
Capital paid-in
Bedford Class $ 202,009,609
Bradford Class 129,398,582
Cash Preservation Class 115,765
Janney Montgomery Scott Class 89,426,172
RBB Class 5,143
Other Classes 800
Accumulated net realized gain (loss)
on investments
Bedford Class (69,803)
Bradford Class 339
Cash Preservation Class 5
Janney Montgomery Scott Class 1,734
RBB Class --
-------------
$ 420,888,346
=============
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, $67,725 capital loss carryovers were available to
offset future realized gains of which $55,760 expires in 1999, $444 expires in
2000, $1,058 expires in 2001, $9,789 expires in 2002 and $674 expires in 2004.
18
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers four other classes of shares representing
interests in the Municipal Money Market Portfolio: Bedford, Cash Preservation,
Janney Montgomery Scott and RBB. Each class is marketed to different types of
investors. Financial Highlights of the RBB and Cash Preservation classes are not
presented in this report due to their immateriality. Such information is
available in the annual reports of each respective family. The financial
highlights of certain of the other classes are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET PORTFOLIO
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- --------- --------- --------- ---------
Income from investment operations:
Net investment income.................... 0.0288 0.0297 0.0195 0.0195 0.0287
Net gain on securities (both realized
and unrealized) ........................ -- -- -- -- --
--------- --------- --------- --------- ---------
Total from investment operations 0.0288 0.0297 0.0195 0.0195 0.0287
--------- --------- --------- --------- ---------
Less distributions:
Dividends (from net investment income)... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
Distributions (from capital gains)....... -- -- -- -- --
--------- --------- --------- --------- ---------
Total distributions................... (0.0288) (0.0297) (0.0195) (0.0195) (0.0287)
--------- --------- --------- --------- ---------
Net asset value, end of year............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total Return............................... 2.92% 3.01%(b) 1.97% 1.96% 2.90%
Ratios /Supplemental Data
Net assets, end of year (000)............ $ 201,940 $ 198,425 $ 182,480 $ 215,577 $ 176,950
Ratios of expenses to average net assets. .84%(a) .82%(a) .77%(a) .77%(a) .77%(a)
Ratios of net investment income to
average net assets .................... 2.88% 2.97% 1.95% 1.95% 2.87%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses average net assets for
the Municipal Money Market Portfolio have been 1.12%, 1.14%, 1.12%, 1.16%
and 1.15% for the years ended August 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
</FN>
</TABLE>
19
<PAGE>
BRADFORD MUNICIPAL MONEY MARKET SHARES
THE RBB FUND, INC.
MUNICIPAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
<TABLE>
<CAPTION>
MUNICIPAL MONEY
MARKET PORTFOLIO
---------------------------------
FOR THE PERIOD
JUNE 12, 1995
FOR THE (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ----------------
<S> <C> <C>
Net asset value, beginning of period ........................... $ 1.00 $ 1.00
--------- -----------
Income from investment operations:
Net investment income ........................................ 0.0278 0.0063
--------- -----------
Total from investment operations ............................. 0.0278 0.0063
--------- -----------
Less distributions
Dividends (from net investment income) ....................... (0.0278) (0.0063)
--------- -----------
Total distributions .......................................... (0.0278) (0.0063)
--------- -----------
Net asset value, end of period ................................. $ 1.00 $ 1.00
========= ===========
Total Return ................................................... 2.81% 2.87%(b)
Ratios /Supplemental Data
Net assets, end of period (000) .............................. $ 89,428 $ 113,226
Ratios of expenses to average net assets ..................... 0.94%(a) 1.00%(a)(b)
Ratios of net investment income to average net assets ........ 2.78% 2.83%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses to average net assets for the Municipal Money
Market Portfolio would have been 1.23% for the year ended August 31, 1996
and 1.30% annualized for the period ended August 31, 1995.
(b) Annualized.
</FN>
</TABLE>
20
<PAGE>
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.
- --------------------------------------------------
CONTENTS
PAGE
Introduction ............................... 2
Financial Highlights ....................... 3
Investment Objective and Policies .......... 4
Purchase and Redemption of Shares .......... 8
Management ................................. 12
Distribution of Shares ..................... 13
Dividends and Distributions ................ 14
Taxes ...................................... 14
Description of Shares ...................... 15
Other Information .......................... 16
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
<PAGE>
BRADFORD
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
OF
THE RBB FUND, INC.
The investment objective of the Government Obligations Money Market
Portfolio is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. The Government
Obligations Money Market Portfolio (the "Portfolio") seeks to achieve such
objective by investing in short-term U.S. Treasury bills and notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The Bradford shares of the Government Obligations Money Market
Portfolio are a class of shares (the "Class") of common stock of The RBB Fund,
Inc. (the "Fund"), an open-end management investment company. Shares of the
Class ("Shares") are offered by this Prospectus and represent interests in such
portfolio.
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 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 advisor for the Fund,
PNC Bank, National Association serves as sub-adviser for the Government
Obligations Money Market Portfolio and custodian for the Fund, PFPC Inc. serves
as 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
PROSPECTUS December 3, 1996
1
<PAGE>
INTRODUCTION
- --------------------------------------------------------------------------------
The RBB Fund, Inc. 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 Government Obligations Money Market Portfolio (the "Government
Obligations Money Market Portfolio" or the "Portfolio").
The investment objective of the Portfolio is to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. To achieve its objective, the Portfolio invests
exclusively in short-term U.S. Treasury bills, notes and other obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and enters into repurchase agreements relating to such
obligations.
Each of the Portfolios seeks to maintain a net asset value of $1.00 per
share; however, there can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
The Portfolio's investment adviser is PNC Institutional Management
Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank") serves as
sub-adviser and custodian for the Fund, and PFPC Inc. ("PFPC") serves as
transfer and dividend disbursing agent for the Fund. Counsellors Securities Inc.
(the "Distributor") acts as distributor of the Fund's shares.
An investor may purchase and redeem Shares through his broker or by direct
purchases or redemptions. See "Purchase and Redemption of Shares."
An investment in the Portfolio 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 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 (BRADFORD SHARES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
Management fees (after waivers)(1) .30%
12b-1 fees (after waivers)(1) .57
Other Expenses (after reimbursements) .105
-----
Total Fund Operating Expenses (Bradford Shares) (after waivers
and reimbursements) .975%
=====
(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 Government Obligations
Money Market Prospectus, Management fees would be .42%; 12b-1 fees would be
.57%; OtherExpenses would be .11% andTotalFund OperatingExpenses would be
1.10%.
2
<PAGE>
EXAMPLE*
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
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: $10 $31 $54 $120
* 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
(Bradford 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 Shares will bear directly or
indirectly. (For more complete descriptions of the various costs and expenses,
see "Management -- Investment Adviser and Sub-Advisor," and "Distribution of
Shares" below.) The expense figures are based on actual costs 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 the Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time the Class 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 Class refers to the income
generated by an investment in the Class 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 the Class 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 the Class are not reflected in the yield of 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
Portfolio depending on the allocation of expenses to each class of the
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The table below sets forth certain information concerning the investment
results of the Bradford Class representing an interest in the Government
Obligations Money Market Portfolio for the period indicated. The financial data
included in this table for each of the periods ended August 31, 1992 through
August 31, 1996 are a part of the Fund's financial statements 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 included in
this table should be read in conjunction with the financial statements and
related notes included in the Statement of Additional Information.
3
<PAGE>
BRADFORD CLASS
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 10, 1992
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income .................... 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities (both realized
and unrealized) ....................... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations ... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- --------
Less distributions
Dividends (from investment income) ....... (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) ....... -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total Distributions ................ (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ................................ 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios/Supplemental Data
Net assets, end of period (000) .......... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average net assets .975%(a) .975%(a) .975%(a) .975%(a)
.975%(a)(b)
Ratios of net investment income to
average net assets .................... 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratio of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994, and 1993, respectively, and 1.15% annualized for the
period ended August 31, 1992.
(b) Annualized.
(c) Financial Highlights relate solely to the Bradford Class of shares within
the portfolio.
</FN>
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Government Obligations Money Market Portfolio's investment objective is
to provide as high a level of current interest income as is consistent with
maintaining liquidity and stability of principal. It seeks to achieve such
objective by investing in short-term U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S.
Treasury; others, such as those of the Federal
4
<PAGE>
National Mortgage Association, are supported by the right of the issuer to
borrow from the Treasury; others, such as those of the Student Loan Marketing
Association, are supported by the discretionary authority of the U.S. Government
to purchase the agency's obligations; still others, such as those of the Federal
Farm Credit Banks or the Federal Home Loan Mortgage Corporation, are supported
only by the credit of the instrumentality. No assurance can be given that the
U.S. Government would provide financial support to U.S. Government-sponsored
agencies or instrumentalities if it is not obligated to do so under law. The
Portfolio will invest in the obligations of such agencies or instrumentalities
only when the investment adviser believes that the credit risk with respect
thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities have historically involved little risk of loss of principal if
held to maturity. However, due to fluctuations in interest rates, the market
value of such securities may vary during the period a shareholder owns Shares
representing interests in the Portfolio. Certain government securities held by
the Portfolio may have remaining maturities exceeding 397 calendar days if such
securities provide for adjustments in their interest rates not less frequently
than every 397 calendar days and the adjustments are sufficient to cause the
securities to have market values, after adjustment, which approximate their par
values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase government
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed upon time and price ("repurchase agreements"). 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 that the 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 plus accrued interest. Default by or bankruptcy of the seller
would, however, expose the Portfolio to possible loss because of adverse market
action or delay in connection with the disposition of the underlying
obligations.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds by entering
into reverse repurchase agreements in accordance with the investment
restrictions described below. Pursuant to such agreements, the Portfolio would
sell portfolio securities to financial institutions and agree to repurchase them
at an agreed upon date and price. The Portfolio would consider entering into
reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. Reverse repurchase agreements
involve the risk that the market value of the portfolio securities sold by the
Portfolio may decline below the price of the securities the Portfolio is
obligated to repurchase. 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 are considered to be borrowings under the
Investment Company Act of 1940 (the "Act").
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks, savings and loan
institutions, and other lenders are often assembled into pools, the interests in
which are issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S Government itself. Interests in
such pools are what this Prospectus calls "mortgage-related securities."
Mortgage-related securities may include asset-backed securities which are
backed by mortgages, installment sales contracts, credit card receivables or
other assets and collateralized mortgage obligations ("CMOs") issued or
guaranteed by U.S. Government agencies and instrumentalities or issued by
private companies. Purchasable mortgage-related
5
<PAGE>
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 t his 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.
One such type of mortgage-related security in which the Portfolio may
invest is a Government National Mortgage Association ("GNMA") Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a Federal
National Mortgage Association ("FNMA") Certificate. Principal and interest
payments on FNMA Certificates are guaranteed only by FNMA itself, not by the
full faith and credit of the U.S. Government. A third type of mortgage-related
security in which the Portfolio may invest is a Federal Home Loan Mortgage
Association ("FHLMC") Participation Certificate. This type of security is
guaranteed by FHLMC as to timely payment of principal and interest but, like a
FNMA security, it is not guaranteed by the full faith and credit of the U.S.
Government. For a further discussion of GNMA, FNMA and FHLMC, see "Mortgage
Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is characterized by
monthly payments to the security holder, reflecting the monthly payments made by
the mortgagors of the underlying mortgage loans. The payments to the security
holders (such as the Portfolio), like the payments on the underlying loans,
represent both principal and interest. Although the underlying mortgage loans
are for specified periods of time, such as twenty or thirty years, the borrowers
can, and typically do, repay them sooner. Thus, the security holders frequently
receive prepayments of principal, in addition to the principal which is part of
the regular monthly payments. A borrower is more likely to prepay a mortgage
which bears a relatively high rate of interest. This means that, in times of
declining interest rates, some of the Portfolio's higher yielding securities
might be repaid and thereby converted to cash and the Portfolio will be forced
to accept lower interest rates when that cash is used to purchase additional
securities. The Portfolio normally will not distribute principal payments
(whether regular or prepaid) to its shareholders. Interest received by the
Portfolio will, however, be distributed to shareholders in the form of
dividends.
To compare the prepayment risk for various securities, various independent
mortgage-related securities dealers publish average remaining life data using
proprietary models. In making determinations concerning average remaining life
of mortgage-related securities for the Portfolio, the investment adviser will
rely on such data to evaluate the prepayment risk in a particular security
except to the extent such data are deemed unreasonable by the investment
adviser. The investment adviser might deem such data unreasonable if such data
appeared to present a significantly different average remaining expected life
for a security when compared to data relating to the average remaining life of
comparable securities as provided by other independent mortgage-related
securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its portfolio securities
to financial institutions in accordance with the investment restrictions
described below. Such loans would involve risks of delay in receiving additional
collateral in the event the value of the collateral decreased below the value of
the securities loaned or of delay in recovering the securities loaned or even
loss of rights in the collateral should the borrower of the securities fail
financially. However, loans will be made only to borrowers deemed by the
Portfolio's investment adviser to be of good standing and only when, in the
adviser's judgment, the income to be earned from the loans justifies the
attendant risks. Any loans of the Portfolio's securities will be fully
collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a short sale, the
Portfolio sells a borrowed security and has a corresponding obligation to the
lender to return the identical security. The Portfolio may engage in short sales
only if at the time of the short sale it owns or has the right to obtain, at no
additional cost, an equal amount of the security being sold short. This
investment technique is known as a short sale "against the box." The Portfolio
will not engage in short sales against the box to enhance the Portfolio's yield
or to increase the Portfolio's income. The Portfolio may, however, make a short
sale against the box as a hedge. The Portfolio will engage in short sales
against the box when
6
<PAGE>
it believes that the price of security may decline, causing a decline in the
value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for Federal income tax purposes and for certain purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In a short sale, the seller does not immediately deliver
the securities sold and is said to have a short position in those securities
until delivery occurs. If the Portfolio engages in a short sale, the collateral
for the short position will be maintained by the Portfolio's custodian or a
qualified sub-custodian. While the short sale is open, the Portfolio will
maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
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 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 Government Obligations 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 the Portfolio's
outstanding shares. 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
Government Obligations Money Market Portfolio will be achieved. The investment
limitations summarized below may not be changed, however, without such a vote of
shareholders. (A more detailed description of the following investment
limitations is contained in the Statement of Additional Information under
"Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes and other
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, and repurchase agreements relating to such obligations.
2. Borrow money, except from banks for temporary purposes, and except
for reverse repurchase agreements, and then in an amount not exceeding 10%
of the value of the Portfolio's total assets, and only if after such
borrowing there is asset coverage of at least 300% for all borrowings of
the Portfolio; or mortgage, pledge or hypothecate its assets except in
connection with any such borrowing and in amounts not in excess of 10% of
the value of the Portfolio's assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is not
for investment leverage, but solely to facilitate management of the
Portfolio by enabling the Portfolio to meet redemption requests where
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Make loans except that the Portfolio may purchase or hold debt
obligations in accordance with its investment objective, policies and
limitations, may enter into repurchase agreements for securities, and may
lend portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted investments,
which is equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities that
may be loaned, except that payments received on such loans, including
amounts received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital gains)
unless, in the opinion of counsel to the Fund, such amounts are qualifying
income under Federal income tax provisions applicable to regulated
investment companies.
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<PAGE>
PURCHASE AND REDEMPTION OF SHARES
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PURCHASE PROCEDURES
GENERAL. Shares are sold without a sales load on a continuous basis by the
Distributor. The Distributor is located at 466 Lexington Avenue, New York, New
York. Investors may purchase Shares through an account maintained by the
investor with his brokerage firm (an "Account") and may also purchase Shares
directly by mail or bank wire. The minimum initial investment is $1,000, and the
minimum subsequent investment is $100. The Fund in its sole discretion may
accept or reject any order for purchases of 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 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 the 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
an investor's Account with his broker through procedures established in
connection with the requirements of Accounts at such broker. In such event,
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 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.
A broker may offer investors maintaining Accounts the ability to purchase
Shares under an automatic purchase program (a "Purchase Program") established by
a participating broker. An investor who participates in a Purchase Program will
have his "free-credit" cash balances in his Account automatically invested in
Shares. The frequency of investments and the minimum investment requirement will
be established by the broker and the Fund. In addition, the broker may require a
minimum amount of cash and/or securities to be deposited in an Account for
participants in its Purchase Program. The description of the particular broker's
Purchase Program should be read for details, and any inquiries concerning an
Account under a Purchase Program should be directed to the broker.
If a broker makes special arrangements under which orders for 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.
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<PAGE>
DIRECT PURCHASES. An investor may also make direct investments in Shares at
any time through any broker that has entered into a dealer agreement with the
Distributor (a "Dealer"). An investor may make an initial investment by mail by
fully completing and signing an application obtained from a Dealer (an
"Application") and mailing it, together with a check payable to "Bradford
Government Obligations Money Market" c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. An Application will be returned to the investor unless it
contains the name of the Dealer from whom it was obtained. Subsequent purchases
may be made through a Dealer or 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 Dealer wire Federal Funds to the Fund's
Custodian, PNC Bank, National Association. An investor's bank or Dealer 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) 533-7719 (in
Delaware call collect (302) 791-1196), and provide it with your name, address,
telephone number, Social Security or Tax Identification Number, 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 Dealer to wire the specified amount, together with
your assigned account number, to the Custodian:
PNC Bank, National Association, Philadelphia, Pa.
ABA-0310-0005-3
FROM: (name of investor)
ACCOUNT NUMBER: (investor's account number with 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.
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 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.
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<PAGE>
An investor's brokerage firm will also redeem each day a sufficient number
of Shares to cover debit balances created by transactions in the Account or
instructions for cash disbursements. Shares will be redeemed on the same day
that a transaction occurs that results in such a debit balance or charge.
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. A direct investor may redeem any
number of Shares by sending a written request to Bradford Government Obligations
Money Market, c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. It is
recommended that such request be sent by registered or certified mail if share
certificates accompany the request. 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, each signature must be guaranteed. A signature
guarantee verifies the authenticity of your signature and the guarantor must be
an eligible guaranty. In order to be eligible, the guarantor must be a
participant in a STAMP program (a Securities Transfer Agents Medallion Program).
You may call the Transfer Agent at (800) 533-7719 to determine whether the
entity that will guarantee the signature is an eligible guarantor. Guarantees
must be signed by an authorized signatory of the bank, trust company or member
firm and "Signature Guaranteed" must appear with the signature.
Direct 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) 533-7719 (in Delaware call collect (302) 791-1196).
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.
Neither PFPC nor the Fund will be liable for any loss, liability, cost or
expense following the procedures described below or for following instruction
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 checkwriting privileges for his
Account with forms of drafts ("checks") payable through PNC Bank. These checks
may be made payable to the order of anyone. The minimum amount of a check is
$100; however, a broker/dealer may estab-
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<PAGE>
lish 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 with 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 the rules of the Investment Company Act of
1940 (the "1940 Act"), 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 cashed at
other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will make payment
for all Shares redeemed within seven days after receipt by PFPC of a redemption
request in proper form. However, Shares purchased by check will not be redeemed
for a period of up to fifteen days after their purchase, pending a determination
that the check has cleared. This procedure does not apply to Shares purchased by
wire payment. During the period prior to the time Shares are redeemed, dividends
on such Shares will accrue and be payable.
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.
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 weekdays, with the
exception of those holidays on which either the NYSE or the FRB is closed.
Currently, the NYSE or the FRB, or both, are closed on the customary national
business holidays of New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day (observed), Labor Day, Thanksgiving Day and Christmas Day
(observed) except the FRB is also closed on Martin LutherKing, Jr. Day, Columbus
Day and Veterans Day. The 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 the 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.
11
<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment portfolio of the
Fund 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 Government Obligations Money Market Portfolio is one of such
portfolios.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the investment
adviser for the Government Obligations Money Market 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 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 the 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 Portfolio's 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 Portfolio, PIMC is entitled to receive the following fees, computed daily
and payable monthly based on the 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 agreement 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 .30% of the average net assets of the Government
Obligations Money Market Portfolio. For that same year, PIMC waived
approximately .12% of the advisory fees payable with respect to the Government
Obligations 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 Portfolios. The
services provided and the fees payable by the Fund for these services are
described in the Statement of Additional Information under "Investment Advisory,
Distribution and Servicing Arrangements."
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<PAGE>
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 of shares of the
Fund, the expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class of shares of the
Fund, 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 the
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 the Portfolio's expense ratio and of decreasing yield
to investors.
For the fiscal year ended August 31, 1996, the Fund's total expenses were
1.10% of the average net assets with respect to the Bradford Class of the
Government Obligations Money Market Portfolio (not taking into account waivers
and reimbursements of .125%).
DISTRIBUTION OF SHARES
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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 pursuant to a distribution
contract (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. The actual amount of such compensation is agreed upon from time to
time by the Fund's Board of Directors and the Distributor. Under the
Distribution Contract, the Distributor has agreed to accept compensation for its
services thereunder and under the Plan in the amount of .60% of the average net
assets of the Class on an annualized basis in any year. Pursuant to the
conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to the
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
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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 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 in effect with respect to the Class has been approved by
shareholders. Under the terms of Rule 12b-1, the Plan 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 Government Obligations Money Market
Portfolio to the Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares 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 Portfolio and its 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. So long as
the Portfolio qualifies for this tax treatment, the 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 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 or whether such gain was reflected in the
price paid for the Shares. All other distributions,
14
<PAGE>
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 will be taxed at the same rates as under
current law 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. Ordinarily, shareholders will
include all dividends declared by the Fund in income in the year of payment.
However, 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 and paid by the Fund on
December 31, of such year, if such dividends are paid during January of the
following year. The Fund intends to make sufficient actual or deemed
distributions with respect to the Portfolio 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.
Future legislative or administrative changes or court decisions may
materially affect the tax consequences of investing in the Portfolio.
Shareholders are also urged to consult their tax advisers concerning the
application of state and local income taxes to investments in the Fund which may
differ from the Federal income tax consequences described above.
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 the Government Obligations
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 BRADFORD SHARES OF THE GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES,
OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO SUCH SHARES.
Each share that represents an interest in the Portfolio has an equal
proportionate interest in the assets belonging to the Portfolio with each other
share that represents an interest in the Portfolio, even where a share has a
different class designation than another share representing an interest in the
Portfolio. Shares of the Fund do not have preemptive or conversion rights. When
issued for payment as described in this Prospectus, Shares 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
15
<PAGE>
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 when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of common stock of the Fund may elect all of
the directors.
As of 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) 533-7719 (in Delaware call collect
(302) 791-1196).
16
<PAGE>
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<PAGE>
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<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIO OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides supplementary
information pertaining to a class of Shares (the "Class") of The RBB Fund, Inc.
representing interests in the Government Obligations Money Market Portfolio (the
"Portfolio"). This Statement of Additional Information is not a prospectus, and
should be read only in conjunction with the Bradford Government Obligations
Money Market Portfolio Prospectus of The RBB Fund, Inc. 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 2
Investment Objective and Policies ............. 2 5
Directors and Officers ........................ 7 N/A
Investment Advisory, Distribution and Servicing
Arrangements ............................... 10 12
Portfolio Transactions ........................ 14 N/A
Purchase and Redemption Information ........... 15 8
Valuation of Shares ........................... 16 12
Taxes ......................................... 18 15
Additional Information Concerning Fund Shares.. 21 15
Miscellaneous ................................. 24 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 "Shares") representing
interests in the Government Obligations Money Market Portfolio of the Fund. The
Shares are 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 OBJECTIVE AND POLICIES
The following supplements the information contained in the Prospectus
concerning the investment objective 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.
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.
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns
2
<PAGE>
or has the right to obtain, at no additional cost, an equal amount of the
security being sold short. This investment technique is known as a short sale
"against the box." In a short sale, a seller does not immediately deliver the
securities sold and is said to have a short position in those securities until
delivery occurs. If the Portfolio engages in a short sale, the collateral for
the short position will be maintained by the Portfolio's custodian or a
qualified sub-custodian. While the short sale is open, the Portfolio will
maintain in a segregated account an amount of securities equal in kind and
amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. These securities constitute the
Portfolio's long position. The Portfolio will not engage in short sales against
the box for investment purposes. A Portfolio may, however, make a short sale as
a hedge, when it believes that the price of a security may decline, causing a
decline in the value of a security owned by the Portfolio (or a security
convertible or exchangeable for such security), or when the Portfolio wants to
sell the security at an attractive current price, but also wishes to defer
recognition of gain or loss for federal income tax purposes and for purposes of
satisfying certain tests applicable to regulated investment companies under the
Internal Revenue Code. In such case, any future losses in the Portfolio's long
position should be reduced by a gain in the short position. Conversely, any gain
in the long position should be reduced by a loss in the short position. The
extent to which such gains or losses are reduced will depend upon the amount of
the security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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
3
<PAGE>
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 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.
The coupon rate of interest on mortgage-related securities is
lower than the interest rates paid on the mortgages included in the underlying
pool, but only by the amount of the fees paid to the mortgage pooler, issuer,
and/or guarantor of payment of the securities for the guarantee of the services
of passing through monthly payments to investors. Actual yield may vary from the
coupon rate, however, if mortgage-related securities are purchased at a premium
or discount, traded in the secondary market at a premium or discount, or to the
extent that mortgages in the underlying pool are prepaid as noted above. In
addition, interest on mortgage-related securities is earned monthly, rather than
semi-annually as is the case for traditional bonds, and monthly compounding may
tend to raise the effective yield earned on such securities.
LENDING OF SECURITIES. With respect to loans by the
Portfolio of its portfolio securities as described in the
Prospectus, the Portfolio would
4
<PAGE>
continue to accrue interest on loaned securities and would also earn income on
loans. Any cash collateral received by the Portfolio in connection with such
loans would be invested in short-term U.S. Government obligations. Any loans by
the Government Obligations Money Market Portfolio of its portfolio's securities
will be fully collateralized and valued by marking to the market daily.
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. 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 and municipal securities. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities will expand further as a result of
5
<PAGE>
this 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 Portfolio may not:
1. Purchase securities other than U.S.
Treasury bills, notes and other obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations. There is no limit on the
amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is
permitted to purchase.
2. Borrow money, except from banks for
temporary purposes, and except for reverse repurchase agreements, and
then in an amount not exceeding 10% of the value of the Portfolio's
total assets, and only if after such borrowing there is asset coverage
of at least 300 percent for all borrowings of the Portfolio; or
mortgage, pledge, hypothecate its assets, except in connection with any
such borrowing and in amounts not in excess of 10% of the value of the
Portfolio's assets at the time of such borrowing; or purchase portfolio
securities while borrowings in excess of 5% of the Portfolio's net
assets are outstanding. (This borrowing provision is not for investment
leverage, but solely to facilitate management of the Portfolio by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio
may purchase or hold debt obligations in accordance with its investment
objective, policies and limitations, may enter into repurchase
agreements for securities, and may lend portfolio securities against
collateral, consisting of cash or securities which are consistent with
the Portfolio's permitted investments, which is equal at all times to
at least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts received
6
<PAGE>
during the loan on account of interest on the securities loaned, may
not (together with all non-qualifying income) exceed 10% of the Portfolio's
annual gross income (without offset for realized capital gains) unless, in
the opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions. 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:
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Officer and
since 1991, Secretary,
Counsellors Securities Inc.;
Officer of various
investment companies
advised by Warburg, Pincus
Counsellors, Inc.
Robert J. Sablowsky - 58** Director Since OCTOBER 1996, SENIOR
110 Wall Street VICE PRESIDENT OF FAHNESTOCK
New York, NY 10005 & CO., INC. 1985 TO 1996,
Executive Vice President of
Gruntal & Co., Inc.,
Director, Gruntal & Co., Inc.
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).
7
<PAGE>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
Marvin E. Sternberg - 62 Director Since 1974, Chairman,
937 Mt. Pleasant Road Director and President,
Bryn Mawr, PA 19101 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, Inc.)
(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 Chairman
1234 Market Street 1969 to present, Comcast
16th Floor Corporation television and
Philadelphia,PA 19107-3723 communications); Director,
Comcast Cablevision of
Philadelphia (cable
television communications)
and Nextel (Wireless
Communications).
Donald van Roden - 72 Director Self-employed businessman.
1200 Old Mill Lane From February 1980 to March
Wyomissing, PA 19610 1987, Vice Chairman,
SmithKline Beckman
Corporation
(pharmaceuticals); Director,
AAA Mid-Atlantic (auto
service); Director, Keystone
Insurance Co.
Edward J. Roach - 72 President Certified Public Accountant;
Suite 100, and Treasurer Vice Chairman of the Board,
Bellevue Park Corporate Fox Chase Cancer Center;
Center Trustee Emeritus,
400 Bellevue Parkway Pennsylvania School for the
Wilmington, DE 19809 Deaf; Trustee Emeritus,
Immaculata College; Vice
President and Treasurer of
various investment companies
advised by PNC Institutional
Management Corporation.
8
<PAGE>
Position with Principal Occupation
Name, Address and Age Fund During Past Five Years
- --------------------- ------------- ----------------------
Morgan R. Jones - 57 Secretary Chairman, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia, Pennsylvania
Philadelphia, PA 19107 Chief Executive Officer);
Director, Rocking Horse Child
Care Centers of America, Inc.
- ------------------------------
* 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
9
<PAGE>
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 portfolio's sub-advisor and the Fund's custodian,
PFPC Inc. ("PFPC"), the Fund's transfer and dividend disbursing agent, and
Counsellors Securities Inc. (the "Distributor"), the Fund's distributor, the
Fund itself requires only one part-time employee. No officer, director or
employee of PIMC, PNC Bank, PFPC or the Distributor currently receives any
compensation from the Fund.
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 and administrative services to the Portfolio pursuant to an
Investment Advisory and Administration Agreement, dated August 16, 1988, and PNC
Bank renders sub-advisory services to the Portfolio pursuant to a Sub-Advisory
Agreement, 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 ) $1,638,622 IN ADVISORY FEES AND WAIVED $671,811 OF ADVISOR FEES WITH
RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED
AUGUST 31, 1995, PIMC received (after waivers) $780,122 in advisory fees and
waived $398,363 of advisory fees with respect to the Government Obligations
Money Market Portfolio.
As required by various state regulations, PIMC will reimburse
the Fund or the Portfolio (as applicable) if and to the extent that the
aggregate operating expenses of the Fund or the Portfolio 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.
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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 the 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 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 the 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 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
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were each approved 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. Each of the Advisory Contracts may also be
terminated by PIMC or PNC Bank, respectively, on 60 days' written notice to the
Fund. Each of the Advisory Contracts terminates automatically in the event of
assignment thereof.
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 the 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 Shares of the Fund pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplement dated as of November 5,
1991 (the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
Shares, (b) addresses and mails all communications by the Portfolio to record
owners of Shares, 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
classes of the Fund. 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
Financial 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 via 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
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<PAGE>
("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 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 AGREEMENT. Pursuant to the terms of a distribution
contract, dated as of April 10, 1991, and supplement dated as of November 5,
1991 (the "Distribution Contract") entered into by the Distributor and the Fund
with respect to the Shares, and a Plan of Distribution for the Shares (the
"Plan"), both of which were adopted by the Fund in the manner prescribed by Rule
12b-1 under the 1940 Act, the Distributor will use its best efforts to
distribute the Shares. 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 relating to the relevant Bradford class was approved
for continuation 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 the
sole shareholder of the Class at a special meeting held on November 5, 1991, 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 Shares
under the Plan shall not be materially increased without the affirmative vote of
the holders of a majority of the Shares; 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.
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During the period ended August 31, 1996, the Fund paid
distribution fees to the Distributor under the Plan in the aggregate amount of
$275,120 of which $238,906 was paid to dealers with whom the Fund's
Distributor had entered into dealer agreements and $36,214 was retained by the
Distributor and used to pay certain legal fees, printing, postage, travel and
entertainment, administrative and sales and marketing expenses. During the same
period, the Distributor waived no distribution fees.
The Fund believes that the 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 Plans 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). Because the Portfolio intends to purchase only securities with
remaining maturities of 397 calendar days or less, its portfolio turnover rate
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 the 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 does not 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.
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<PAGE>
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 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
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<PAGE>
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 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 WEEKENDS AND 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 ON THE SAME HOLIDAYS AS THE NYSE IS CLOSED (EXCEPT CHRISTMAS DAY
(OBSERVED)) AS WELL AS MARTIN LUTHER KING, JR. DAY, VETERANS DAY AND COLUBUS
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
16
<PAGE>
prior to maturity, reducing or withholding dividends, and utilizing a net asset
value per share as determined by using available market quotations.
The Portfolio will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements, 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 current and effective yields of
Shares of the Class are computed using standardized methods required by the SEC.
The annualized yield for Shares of the Class is 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 ended August 31, 1996
for the Bradford Class of the Government Obligations Money Market Portfolio was
4.42%. The effective yield for the same period for such Class was 4.52%.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yield of Shares of the Class will
fluctuate, it 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
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be given to each fund's investment policies, including the types of investments
made, lengths of maturities of the portfolio securities, the method used by each
fund to compute the yield (methods may differ) and whether there are any special
account charges which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which the Portfolio invests 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 Investor Services, Inc. ("Moody's") and Standard & Poors
Corporation ("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 the Portfolio should continue to hold the
obligation.
From time to time, in advertisements or in reports to
shareholders, the yield of Shares of the Class 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 Shares of the Class may be
compared to the Donoghue's Money Fund Average, which is an average compiled by
IBC/Donoghue's MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized
independent publication that monitors the performance of money market funds, or
to the 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 Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Portfolio or its 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
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<PAGE>
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income and
net tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement 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 (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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<PAGE>
or more issuers which the Portfolio controls and which are engaged in the same
or similar trades of 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
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 it to fail to satisfy the Asset
Diversification Requirement.
The Portfolio is not intended to constitute a balanced
investment program nor is it designed for investors seeking capital
appreciation.
Distributions of net investment income received by the
Portfolio from investments in debt securities and any net realized short-term
capital gains distributed by the Portfolio will be taxable to shareholders as
ordinary income and will not be eligible for the dividends received deduction
for corporations.
While the Portfolio does not expect to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities, 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 taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions between the 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 the taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates is 28%. Capital
gains and ordinary income of corporate taxpayers, however, is in all cases,
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
20
<PAGE>
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 in the case of
a tax-exempt portfolio) 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.
Shareholders will be advised annually as to the Federal income
tax consequences of distributions made by the Portfolio during the year.
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 one-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, the Portfolio does not
anticipate incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
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.
21
<PAGE>
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, 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 ( STATEGIC GLOBAL Fixed Income), 50 million shares are
classified as Class AA Common Stock (Municipal Bond), 50 million shares are
classified as Class BB Common Stock (BEA Balanced), 50 million shares are
classified as Class CC Common Stock (Short Duration), 100 million shares are
classified as Class DD COMMON STOCK, 100 million shares are classified as
Class EE COMMON STOCK, 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 AS CLASS SS COMMON STOCK (BOSTON PARTNERS
22
<PAGE>
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 S Common Stock constitute the Bradford 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, the Municipal Money Market and the Government
Obligations Money Market Portfolios; the Cash Preservation Family represents
interests in the Money Market and Municipal Money Market Portfolios; the Bedford
Family represents interests in the Money Market, Municipal Money Market,
Government Obligations Money Market and New York
23
<PAGE>
Municipal 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 REPRESENT INTERESTS IN ON
NON-MONEY market portfolios; 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
the portfolio only if approved by the holders of a majority of the outstanding
voting securities of the portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
24
<PAGE>
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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Luanne M. Garvey and Robert J. Garvey 12.7
Portfolio 2729 Woodland Avenue
(Class E) Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market Portfolio William B. Pettus Trust 11.4
(Class F) Augustine W. Pettus Trust
827 Winding Path Lane
St. Louis, MO 63021- 6635
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
SEYMOUR Fein 88.6
P.O. Box 486
Tremont Post Office
Bronx, NY 10457-0486
CASH Preservation Money Market Jewish Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust 12.3
under The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
Theresa M. Palmer 6.8
5731 N. 4th Street
Philadelphia, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
St. Louis, MO 63107
GARY L. LANGE and 10.4
SUSAN D. LANGE JTTEN
13 MUIRFIELD CT NORTH
ST. CHARLES, MO 63309
ANDREW DIEDERICH ADN DORIS DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. HAUGH CARING TR DTD 8/12/91 15.3
40 PLAZA SQUARE
APT. 202
ST.LOUIS, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GWENDOYLN HAYNES 5.2
2757 Geyer
ST. LOUIS, MO
SAVANNAH THOMAS TRUST 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
Sansom Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS MONEY J.C. BRADFORD & CO. 100
(CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT INCOME TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT 5.0
625 MADISON AVE., 4TH FLOOR
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GUENTER FULL TRST MICHELIN NORTH AMERICA 16.7
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND 6.3
8650 FLAIR DRIVE
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Portfolio Wachovia Bank North Carolina Trust for 15.7
(Class V) Carolina Power &
Light 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 RETIREMENT 10.8
SYSTEM
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' 24.5
(Class Y) Pension Fund Board of Trustees
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
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
SLOVES
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND CHARLES SCHWAB & CO. INC. 24.4
(CLASS HH) SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market Janney Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
JANNEY Montgomery Scott JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY MARKET) Philadelphia, PA 19103-1675
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Janney Montgomery Scott Government Janney Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT OBLIGATIONS Philadelphia, PA 19103-1675
MONEY)
Janney Montgomery Scott New York Janney Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
32
<PAGE>
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.
33
<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
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS
AUGUST 31, 1996
PAR
(000) VALUE
-------- ------------
AGENCY OBLIGATIONS--53.8%
FEDERAL FARM CREDIT BANK--8.1%
5.120% 09/04/96(DAGGER) ..................... $ 15,000 $ 14,998,280
5.400% 04/01/97 ............................. 30,000 29,977,099
------------
44,975,379
------------
FEDERAL HOME LOAN BANK--8.1%
5.277% 09/02/96(DAGGER) ..................... 20,000 19,998,784
5.238% 09/20/96(DAGGER) ..................... 15,000 14,999,434
5.560% 10/25/96 ............................. 10,000 9,997,291
------------
44,995,509
------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--28.6%
5.370% 09/03/96(DAGGER) ..................... 10,000 10,000,000
5.410% 09/03/96(DAGGER) ..................... 10,000 9,994,465
5.465% 09/03/96(DAGGER) ..................... 10,000 9,999,787
5.348% 09/06/96(DAGGER) ..................... 20,000 19,992,305
5.337% 09/17/96(DAGGER) ..................... 20,000 19,990,167
5.310% 10/18/96 ............................. 15,000 14,996,237
5.320% 11/21/96(DAGGER) ..................... 25,000 24,992,910
5.270% 11/26/96 ............................. 20,000 19,748,211
5.530% 01/10/97 ............................. 15,000 14,698,154
5.240% 01/15/97 ............................. 15,000 14,703,067
------------
159,115,303
------------
STUDENT LOAN MARKETING ASSOCIATION(DAGGER)--9.0%
5.400% 09/03/96 ............................. 9,000 8,998,786
5.410% 09/03/96 ............................. 5,000 5,000,000
5.420% 09/03/96 ............................. 5,000 4,999,414
5.460% 09/03/96 ............................. 15,000 14,996,128
5.585% 09/03/96 ............................. 3,850 3,851,055
5.610% 09/03/96 ............................. 12,100 12,105,327
------------
49,950,710
------------
TOTAL AGENCY OBLIGATIONS
(Cost $299,036,901) ..................... 299,036,901
------------
PAR
(000) VALUE
------- ------------
U. S. TREASURY OBLIGATIONS--7.2%
U.S. TREASURY NOTES--7.2%
6.875% 02/28/97 ...................... $20,000 $ 20,159,607
6.875% 03/31/97 ...................... 10,000 10,075,608
6.500% 04/30/97 ...................... 10,000 10,050,993
------------
TOTAL U. S. TREASURY
OBLIGATIONS
(Cost $40,286,208) ............... 40,286,208
------------
REPURCHASE AGREEMENTS--38.5%
Aubrey G. Lanston & Co. Inc.
5.200% 09/03/96 ...................... 92,000 92,000,000
(Agreement dated 08/30/96 to be
repurchased at $92,053,156,
collateralized by $44,562,500
U.S. Treasury Bond 6.25% due
08/15/23 and collateralized by
$47,439,700 U.S. Treasury
Notes 7.75% to 8.50% due
12/31/99 to 11/15/00. Market
value of collateral is $92,002,200.)
Donaldson, Lufkin & Jenrette
5.310% 09/03/96 ...................... 102,200 102,200,000
(Agreement dated 08/30/96 to be
repurchased at $102,260,298,
collateralized by $110,810,000
Federal Home Loan Mortgage
Corp. due 08/15/26
Market value of collateral is
$105,270,608.)
Morgan Stanley & Co.
5.270% 09/20/96 ...................... 20,000 20,000,000
(Agreement dated 08/22/96 to be
repurchased at 20,084,906,
collateralized by $25,860,948
Federal Home Loan Mortgage
Corp. 0% to 8.00% due 12/01/09 to
06/15/35. Market value of collateral
is $20,405,022.)
------------
TOTAL REPURCHASE AGREEMENTS
(Cost $214,200,000) .............. 214,200,000
------------
See Accompanying Notes to Financial Statements.
3
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF NET ASSETS (CONCLUDED)
AUGUST 31, 1996
VALUE
------------
TOTAL INVESTMENTS AT VALUE--99.5%
(COST $553,523,109*).................. $553,523,109
OTHER ASSETS IN EXCESS
OF LIABILITIES--0.5%.................. 3,023,896
------------
NET ASSETS (Applicable to
192,603,016 Bedford shares,
57,191,735 Bradford shares,
306,763,729 Janney Montgomery
Scott shares and 800 other
shares)--100%......................... $556,547,005
============
NET ASSET VALUE, offering and
redemption price per share
($556,547,005 (DIVIDE) 556,559,280)... $1.00
=====
* Also cost for Federal income tax purposes.
(DAGGER) Variable Rate Obligations -- The interest rate is the rate as of August
31, 1996 and the maturity date shown is the longer of the next interest
readjustment date or the date the principal amount shown can be
recovered through demand.
See Accompanying Notes to Financial Statements.
4
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
Investment Income
Interest .................................................... $30,707,263
-----------
Expenses
Investment advisory fees .................................... 2,310,433
Distribution fees ........................................... 3,236,194
Directors' fees ............................................. 10,037
Custodian fees .............................................. 102,930
Transfer agent fees ......................................... 610,887
Legal fees .................................................. 20,228
Audit fees .................................................. 16,044
Registration fees ........................................... 134,940
Insurance expense ........................................... 11,658
Printing fees ............................................... 107,852
Miscellaneous ............................................... 499
-----------
6,561,702
Less fees waived ............................................ (671,811)
Less expense reimbursement by advisor ....................... (406,954)
-----------
Total expenses .......................................... 5,482,937
-----------
Net investment income .......................................... 25,224,326
-----------
Realized loss on investments ................................... (10,995)
-----------
Net increase in net assets resulting from operations ........... $25,213,331
===========
See Accompanying Notes to Financial Statements.
5
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
Increase (decrease)
in net assets:
Operations:
Net investment income ..................... $ 25,224,326 $ 12,855,095
Net gain (loss)
on investments .......................... (10,995) 41,241
------------ ------------
Net increase in net assets
resulting from operations ............... 25,213,331 12,896,336
------------ ------------
Distributions to shareholders:
Dividends to shareholders from
net investment income:
Bedford shares .......................... (8,829,111) (7,551,189)
Bradford Shares ......................... (2,208,959) (2,071,772)
Janney Montgomery Scott shares .......... (14,186,256) (3,232,134)
Dividends to shareholders from net
realized short-term gains:
Bedford shares .......................... (12,697) --
Bradford shares ......................... (3,154) --
Janney Montgomery Scott shares .......... (18,204) --
------------ ------------
Total distributions
to shareholders ..................... (25,258,381) (12,855,095)
------------ ------------
Net capital share transactions .............. 44,099,699 306,300,108
------------ ------------
Total increase in net assets ................ 44,054,649 306,341,349
Net Assets:
Beginning of year ......................... 512,492,356 206,151,007
------------ ------------
End of year ............................... $556,547,005 $512,492,356
============ ============
See Accompanying Notes to Financial Statements.
6
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
FINANCIAL HIGHLIGHTS (c)
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 10, 1992
FOR THE FOR THE FOR THE FOR THE (COMMENCEMENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ................... 0.0458 0.0475 0.0270 0.0231 0.0208
Net gains on securities (both realized
and unrealized) ....................... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment operations .......... 0.0458 0.0475 0.0270 0.0231 0.0217
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment income) .. (0.0458) (0.0475) (0.0270) (0.0231) (0.0208)
Distributions (from capital gains) -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions ................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0217)
-------- -------- -------- -------- --------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return .............................. 4.68% 4.86% 2.73% 2.33% 3.42%(b)
Ratios /Supplemental Data
Net assets, end of period ............... $ 57,190 $ 46,509 $ 39,732 $ 50,523 $ 42,477
Ratios of expenses to average
net assets ............................ .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)(b)
Ratios of net investment income
to average net assets ................. 4.58% 4.75% 2.70% 2.31% 3.23%(b)
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
would have been 1.10%, 1.13%, 1.18% and 1.18% for the years ended August
31, 1996, 1995, 1994 and 1993, respectively and 1.15% annualized for the
period end August 31, 1992.
(b) Annualized.
(c) Financial Highlights relate soley to the Bradford Class of shares within
the portfolio.
</FN>
</TABLE>
See Accompanying Notes to Financial Statements.
7
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The RBB Fund, Inc. (the "Fund") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The Fund
was incorporated in Maryland on February 29, 1988.
The Fund has authorized capital of thirty billion shares of common stock of
which 12.35 billion shares are currently classified into sixty-six classes. Each
class represents an interest in one of seventeen investment portfolios of the
Fund. The classes have been grouped into fifteen separate "families", eight of
which have begun investment operations: the RBB Family, the BEA Family, the
Sansom Street Family, the Bedford Family, the Cash Preservation Family, the
Janney Montgomery Scott Money Family, the n/i Family and the Bradford Family.
The Bradford Government Obligations Money Market Shares represents an interest
in the Government Obligations Money Market Portfolio, which is covered by this
report.
A) SECURITY VALUATION -- Portfolio securities are valued under the
amortized cost method, which approximates current market value. Under this
method, securities are valued at cost when purchased and thereafter a
constant proportionate amortization of any discount or premium is recorded
until maturity of the security. Regular review and monitoring of the
valuation is performed in an attempt to avoid dilution or other unfair
results to shareholders. The Portfolio seeks to maintain net asset value
per share at $1.00.
B) SECURITY TRANSACTIONS AND INVESTMENT INCOME -- Security
transactions are accounted for on the trade date. The cost of investments
sold is determined by use of the specific identification method for both
financial reporting and income tax purposes. Interest income is recorded on
the accrual basis. Certain expenses, principally distribution, transfer
agency and printing, are class specific expenses and vary by class.
Expenses not directly attributable to a specific portfolio or class are
allocated based on relative net assets of each portfolio and class,
respectively.
C) DISTRIBUTIONS TO SHAREHOLDERS -- Dividends from net investment
income are declared daily and paid monthly. Any net realized capital gains
are distributed at least annually. Income distributions and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles.
D) FEDERAL INCOME TAXES -- No provision is made for Federal taxes
as it is the Fund's intention to have the portfolio continue to qualify for
and elect the tax treatment applicable to regulated investment companies
under the Internal Revenue Code and make the requisite distributions to its
shareholders which will be sufficient to relieve it from Federal income and
excise taxes.
E) REPURCHASE AGREEMENTS -- Money market instruments may be
purchased subject to the seller's agreement to repurchase them at an agreed
upon date and price. The seller will be required on a daily basis to
maintain the value of the securities subject to the agreement at not less
than the repurchase price. The agreements are conditioned upon the
collateral being deposited under the Federal Reserve book-entry system or
with the Fund's custodian or a third party sub-custodian.
F) USE OF ESTIMATES -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
8
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Pursuant to Investment Advisory Agreements, PNC Institutional Management
Corporation ("PIMC"), a wholly owned subsidiary of PNC Asset Management Group,
Inc., which is in turn a wholly owned subsidiary of PNC Bank, National
Association ("PNC Bank"), serves as investment advisor for the portfolio
described herein. PNC Bank serves as the sub-advisor for the Government
Obligations Money Market Portfolio.
For its advisory services, PIMC is entitled to receive the following fees,
computed daily and payable monthly based on the portfolio's average daily net
assets:
.45% of first $250 million of net assets;
.40% of next $250 million of net assets;
.35% of net assets in excess of $500 million
PIMC may, at its discretion, voluntarily waive all or any portion of its
advisory fee for this portfolio. For each class of shares within this portfolio,
the net advisory fee charged to each class is the same on a relative basis. For
the year ended August 31, 1996, advisory fees and waivers for the investment
portfolio were as follows:
GROSS NET
ADVISORY ADVISORY
FEE WAIVER FEE
------------ ------------ ------------
$2,310,433 $(671,811) $1,638,622
PNC Bank, as sub-advisor, receives a fee directly from PIMC, not the
portfolio. In addition, PNC Bank serves as custodian for each of the Fund's
portfolios. PFPC Inc. ("PFPC"), an indirect wholly owned subsidiary of PNC Bank
Corp., serves as each class's transfer and dividend disbursing agent. For the
year ended August 31, 1996, transfer agency fees for each class of shares within
the investment portfolio were as follows:
TRANSFER AGENCY
FEE
---------------
Bedford Class $ 81,107
Bradford Class 11,935
Janney Montgomery Scott Class 517,845
---------
Total $610,887
=========
The Fund, on behalf of each class of shares within the investment
portfolio, has adopted Distribution Plans pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and has entered into Distribution
Contracts with Counsellors Securities Inc. ("Counsellors"), which provide for
each class to make monthly payments, based on average net assets, to Counsellors
of up to .65% on an annualized basis for the Bedford, Janney Montgomery Scott
and Bradford Classes and up to .20% on an annualized basis for the Sansom Street
Class.
9
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 2. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (CONTINUED)
For the year ended August 31, 1996, distribution fees for each class were
as follows:
DISTRIBUTION
FEE
------------
Bedford Class $1,091,847
Bradford Class 275,120
Janney Montgomery Scott Class 1,869,227
----------
Total $3,236,194
==========
The Fund has entered into service agreements with banks affiliated with PNC
Bank who render support services to customers who are the beneficial owners of
the Sansom Street Class in consideration of the payment of .10% of the daily net
asset value of such shares. No such payments were necessary for the year ended
August 31, 1996.
NOTE 3. CAPITAL SHARES
Transactions in capital shares (at $1 per capital share) for each year were
as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ---------------
VALUE VALUE
--------------- ---------------
Shares sold:
Bedford Class $ 663,889,198 $ 461,728,190
Bradford Class 180,761,217 192,414,935
Janney Montgomery Scott Class 1,160,250,876 533,143,649
Shares issued in
reinvestment of dividends:
Bedford Class 8,793,104 7,147,384
Bradford Class 2,158,629 2,029,050
Janney Montgomery Scott Class 14,080,097 3,065,158
Shares repurchased:
Bedford Class (643,470,937) (471,908,601)
Bradford Class (172,234,746) (187,671,346)
Janney Montgomery Scott Class (1,170,127,739) (233,648,311)
------------- -------------
Net increase $ 44,099,699 $ 306,300,108
------------- -------------
Bradford Shares authorized 500,000,000 500,000,000
============= =============
10
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 4. NET ASSETS
At August 31, 1996, net assets consisted of the following:
Capital paid-in:
Bedford Class $ 192,603,016
Bradford Class 57,191,735
Janney Montgomery Scott Class 306,763,729
Other Classes 800
Accumulated net realized loss
on investments:
Bedford Class (4,248)
Bradford Class (1,261)
Janney Montgomery Scott Class (6,766)
-------------
$ 556,547,005
=============
11
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
NOTE 5. CAPITAL LOSS CARRYOVERS
At August 31, 1996, $12,275 of capital loss carryovers were available to
offset future realized gains which expire in 2004.
NOTE 6. OTHER FINANCIAL HIGHLIGHTS
The Fund currently offers two other class of shares representing an
interest in the Government Obligations Money Market Portfolio: Bedford and
Janney Montgomery Scott. Each class is marketed to different types of investors.
The financial highlights are as follows:
THE BEDFORD FAMILY
<TABLE>
<CAPTION>
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, 1996 AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993 AUGUST 31, 1992
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of year .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income. ............. 0.0458 0.0475 0.027 0.0231 0.0375
Net gains on securities (both
realized and unrealized) .......... -- -- -- -- 0.0009
-------- -------- -------- -------- --------
Total from investment
operations ..................... 0.0458 0.0475 0.027 0.0231 0.0384
-------- -------- -------- -------- --------
Less distributions
Dividends (from net investment
income) ........................... (0.0458) (0.0475) (0.0270) (0.0231) (0.0375)
Distributions (from capital gains) . -- -- -- -- (0.0009)
-------- -------- -------- -------- --------
Total distributions ............. (0.0458) (0.0475) (0.0270) (0.0231) (0.0384)
-------- -------- -------- -------- --------
Net asset value,
end of year ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
Total Return ......................... 4.68% 4.86% 2.73% 2.33% 3.91%
Ratios /Supplemental Data
Net assets, end of year (000)....... $192,599 $163,398 $166,418 $213,741 $225,101
Ratios of expenses to average
net assets ........................ .975%(a) .975%(a) .975%(a) .975%(a) .975%(a)
Ratios of net investment income
to average net assets ............. 4.58% 4.75% 2.70% 2.31% 3.75%
<FN>
(a) Without the waiver of advisory fees and without the reimbursement of
certain operating expenses, the ratios of expenses to average net assets
for the Government Obligations Money Market Portfolio would have been
1.10%, 1.13%, 1.17%, 1.18%, and 1.12% for the years ended and 1992,
respectively.
</FN>
</TABLE>
12
<PAGE>
BRADFORD GOVERNMENT OBLIGATIONS MONEY MARKET SHARES
THE RBB FUND, INC.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONCLUDED)
AUGUST 31, 1996
NOTE 6. OTHER FINANCIAL HIGHLIGHTS (CONTINUED)
THE JANNEY MONTGOMERY SCOTT FAMILY
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
---------------------------------
FOR THE PERIOD
JUNE 12, 1995
FOR THE (COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
AUGUST 31, 1996 AUGUST 31, 1995
--------------- ----------------
Net asset value,
beginning of period .................. $ 1.00 $ 1.00
-------- --------
Income from investment operations:
Net investment income ................ 0.0456 0.0109
-------- --------
Total from investment
operations ....................... 0.0456 0.0109
-------- --------
Less distributions
Dividends (from net
investment income) ................. (0.0456) (0.0109)
-------- --------
Total distributions ................ (0.0456) (0.0109)
-------- --------
Net asset value, end of period .......... $ 1.00 $ 1.00
======== ========
Total Return ........................... 4.66% 5.03%(b)
Ratios /Supplemental Data
Net assets, end of period (000) ...... $306,757 $302,585
Ratios of expenses to average
net assets ......................... 1.00%(a) 1.00%(a)(b)
Ratios of net investment income
to average net assets .............. 4.56% 4.91%(b)
(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 Government Obligations Money Market Portfolio would have been 1.25%
for the year ended August 31, 1996 and 1.28% annualized for the period
ended August 31, 1995.
(b) Annualized.
13
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
PROSPECTUS
THE BETA FAMILY
MONEY MARKET PORTFOLIO
- -----------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- -----------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION ............................................... 2
FINANCIAL HIGHLIGHTS ....................................... 6
INVESTMENT OBJECTIVES AND POLICIES ......................... 6
PURCHASE AND REDEMPTION OF SHARES .......................... 29
NET ASSET VALUE ............................................ 35
MANAGEMENT ................................................. 36
DISTRIBUTION OF SHARES ..................................... 39
DIVIDENDS AND DISTRIBUTIONS ................................ 41
TAXES ...................................................... 41
DESCRIPTION OF SHARES ...................................... 43
OTHER INFORMATION .......................................... 45
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE BETA FAMILY
OF
THE RBB FUND, INC.
The Beta Family consists of four classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Beta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT OR ANY GOVERNMENTAL AGENCY. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
PNC Institutional Management Corporation serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC BANK") serves as
sub-ADVISER for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-ADVISER, and serves as custodian for the Fund,
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor for the
Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Beta Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and enters into repurchase agreements relating to
such obligations.
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State
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and New York City personal income taxes and which meet certain ratings criteria
and present minimal credit risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios 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 all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-ADVISER, and serves as custodian to the Fund, and
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and 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 any of the Beta
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Beta Classes is subject to certain
risks, as set forth in detail under "Investment Objectives and Policies." Any or
all of the Portfolios, 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
Beta Shares, please refer to the section of this Prospectus entitled "Purchase
and Redemption of Shares."
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FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (BETA CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after
waivers)(1).......... .20% .05% .30% 0%
---- ---- ----
12b-1 fees (after
waivers)(1).......... .55 .55 .57 .51
---- ---- ---- ----
Other Expenses (after
reimbursements)...... .22 .24 .105 .27
---- ---- ---- ----
Total Fund Operating
Expenses (Beta Classes)
(after waivers and
reimbursements....... .97% .84% .975% .78%
==== ==== ===== ====
<FN>
(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,
MUNICIPAL MONEY MARKET PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO, MANAGEMENT FEES WOULD BE .37%,
.33% .42% AND .35% RESPECTIVELY; 12B-1 FEES WOULD BE .55%, .55%, .57% AND .51%,
RESPECTIVELY; OTHER EXPENSES WOULD BE .22%, .24%, .11% AND .28%, RESPECTIVELY
AND TOTAL FUND OPERATING EXPENSES WOULD BE 1.14%, 1.12%, 1.10% AND 1.14%,
RESPECTIVELY.
</FN>
</TABLE>
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:
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
Money Market*........... $10 $31 N/A N/A
Municipal Money
Market*................ $ 9 $27 N/A N/A
Government Obligations
Money Market*.......... $10 $31 N/A N/A
New York Municipal
Money Market........... $ 8 $25 N/A N/A
- --------------------
* Other classes of these Portfolios are sold with different fees and expenses.
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THE EXAMPLE IN THE FEE TABLE ASSUMES THAT ALL DIVIDENDS AND
DISTRIBUTIONS ARE REINVESTED AND THAT THE AMOUNTS LISTED UNDER "ANNUAL FUND
OPERATING EXPENSES (BETA CLASSES) 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 Beta
Classes 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 estimated costs and estimated fees expected to be charged
to the Beta Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management fees will not vary from the figure reflected in the Fee Table. To the
extent that any service providers assume additional expenses of the Portfolios,
such assumption will have the effect of lowering a Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of Federal,
New York State and New York City personal income taxes at stated rates.
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<PAGE>
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Beta Classes 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 the Beta Classes are not
reflected in the yields of the Beta Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
yield on Shares of the Beta Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA IS SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS
OF THE DATE OF THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
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
6
<PAGE>
banks or foreign branches of U.S. banks where the investment adviser deems the
instrument to present minimal credit risks. Such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. The Portfolio may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper
rated (at the time of purchase) in the two highest rating categories of a
nationally recognized statistical rating organization ("NRSRO"). These rating
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy
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<PAGE>
the same criteria as set forth above for issuers of commercial paper. If an
issuer of a variable rate demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of an
active secondary market. For this or other reasons, the Portfolio might suffer a
loss to the extent of the default. The Portfolio invests in variable rate demand
notes only when the Portfolio's investment adviser deems the investment to
involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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
8
<PAGE>
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".
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
9
<PAGE>
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 investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") (e.g., commercial paper rated "A-1" or "A-2" by
S&P), (3) securities that are rated at the time of purchase by the only NRSRO
rating the security in one of its two highest rating categories for such
securities, and (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to eligible rated securities. For a more complete description of
eligible securities, see "Investment Objectives and Policies" in the Statement
of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
which have a maturity of longer than seven days, time deposits with maturities
in excess of seven days, variable rate demand notes with demand periods in
excess of seven
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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
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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 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
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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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During periods
of normal market conditions, at least 80% of the net assets of the Municipal
Money Market Portfolio will be invested in Municipal Obligations. Municipal
Obligations include securities the interest on which is Tax-Exempt Interest,
although to the extent the Portfolio invests in certain private activity bonds
issued after August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of
the interest earned by the Portfolio may constitute an item of tax preference
for purposes of the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable
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obligations bearing Tax-Exempt Interest or AMT Interest are unavailable. There
is no percentage limitation on the amount of assets which may be held uninvested
during temporary defensive periods. Uninvested cash reserves will not earn
income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve
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minimal credit risk. The Portfolio's investment adviser also monitors the
continuing creditworthiness of issuers of such notes to determine whether the
Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal
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securities held by a custodian and such receipts include the option to tender
the underlying securities to the sponsor (usually a bank, broker-dealer or other
financial institution). Although the Internal Revenue Service has not ruled on
whether the interest received on derivative securities in the form of
participation interests or custodial receipts is Tax-Exempt Interest, opinions
relating to the validity of, and the tax-exempt status of payments received by,
the Portfolio from such derivative securities are rendered by counsel to the
respective sponsors of such derivatives and relied upon by the Portfolio in
purchasing such securities. Neither the Portfolio nor its investment adviser
will review the proceedings relating to the creation of any tax-exempt
derivative securities or the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities."
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO -ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The
Municipal Money Market Portfolio may not, however, change the following
investment
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limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio
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<PAGE>
will meet the following limitation on its investments in addition to the
fundamental investment limitations described above. This limitation may be
changed without a vote of shareholders of the Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or instrumentalities only when the investment adviser believes
that the credit risk with respect thereto is minimal.
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Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining
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<PAGE>
maturity of any asset-backed security acquired will be 397 days or less.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data
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<PAGE>
appeared to present a significantly different average remaining expected life
for a security when compared to data relating to the average remaining life of
comparable securities as provided by other independent mortgage-related
securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
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<PAGE>
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO -ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Government Obligations 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 the
Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved. The
investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing and
in amounts not in excess of 10% of the value of the Portfolio's assets
at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter
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<PAGE>
into repurchase agreements for securities, and may lend portfolio
securities against collateral, consisting of cash or securities which
are consistent with the Portfolio's permitted investments, which is
equal at all times to at least 100% of the value of the securities
loaned. There is no investment restriction on the amount of securities
that may be loaned, except that payments received on such loans,
including amounts received during the loan on account of interest on
the securities loaned, may not (together with all non-qualifying
income) exceed 10% of the Portfolio's annual gross income (without
offset for realized capital gains) unless, in the opinion of counsel to
the Fund, such amounts are qualifying income under Federal income tax
provisions applicable to regulated investment companies.
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<PAGE>
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal
Obligations, see "Investment Objectives and Policies--Municipal Money Market
Portfolio--MUNICIPAL OBLIGATIONS."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio
24
<PAGE>
will be subject to the peculiar risks presented by the laws and economic
conditions relating to such states or projects to a greater extent than it would
be if its assets were not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--^ Money Market
Portfolio--Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by Moody's or S&P; commercial paper rated in the highest grade by
Moody's or S&P; and certificates of deposit issued by United States branches of
United States banks with assets of $1 billion or more. At no time will more than
20% of the Portfolio's total assets be invested in taxable short-term securities
unless the Portfolio's investment adviser has determined to temporarily adopt a
defensive investment policy in the face of an anticipated softening in the
market for Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities". For a more complete
description of eligible securities, see "Investment OBJECTIVES AND POLICIES -
MONEY MARKET PORTFOLIO ELIGIBLE SECURITIES" AND "INVESTMENT Objectives and
Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion
25
<PAGE>
of its assets in the obligations of a smaller number of issuers relative to a
diversified portfolio. As a result, the value of a non-diversified investment
portfolio will fluctuate to a greater degree upon changes in the value of each
underlying security. In the opinion of the Portfolio's investment adviser, any
risk to the Portfolio should be limited by its intention to continue to conduct
its operations so as to qualify as a "regulated investment company" for purposes
of the Internal Revenue Code of 1986, as amended, and by its policies
restricting investments to obligations with short-term maturities and
obligations which qualify as eligible securities. In order to qualify as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended, the Portfolio will not purchase the securities of any issuer if as a
result more than 5% of the value of the Portfolio's assets would be invested in
the securities of such issuer, except that (a) up to 50% of the value of the
Portfolio's assets may be invested without regard to this 5% limitation,
provided that no more than 25% of the value of the Portfolio's assets are
invested in the securities of any one issuer and (b) this 5% limitation does not
apply to securities issued or guaranteed by the U.S. Government, or its agencies
or instrumentalities. For purposes of this limitation, a security is considered
to be issued by the governmental entity (or entities) whose assets and revenues
back the security, or, with respect to a private activity bond that is backed
only by the assets and revenues of a non-governmental user, by such
non-governmental user. In certain circumstances, the guarantor of a guaranteed
security may also be considered to be an issuer in connection with such
guarantee.
The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening economic
problems which could seriously affect their ability and that of other issuers of
New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. In recent years, several different
issues of municipal securities of New York State and its agencies and
instrumentalities and of New York City have been downgraded by Standard & Poor's
Corporation ("S&P") and Moody's Investor
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Service, Inc. ("Moody's"). On the other hand, strong demand for New York
Municipal Obligations has more recently had the effect of permitting New York
Municipal Obligations to be issued with yields relatively lower, and after
issuance to trade in the market at prices relatively higher, than comparably
rated municipal obligations issued by others jurisdictions. A recurrence of the
financial difficulties previously experienced by such issuers could result in
defaults or declines in the market values of their existing obligations and,
possibly, in the obligations of other issuers of New York Municipal Obligations.
Although no issuers of New York Municipal Obligations were as of the date of
this Prospectus in default with respect to the payment of their debt
obligations, the occurrence of any such default could adversely effect the
shares. Some of the significant financial considerations relating to the Fund's
investments in New York Obligations are summarized in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than 10% of its
net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION OF ILLIQUID
SECURITIES, SEE "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money Market Portfolio's outstanding shares. 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 New York Municipal Money Market will be
achieved. The New York Municipal Money Market Portfolio may not, however, change
the following investment limitations 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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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
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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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that this
limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for
the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second
investment limitation above) shall not be deemed to be Municipal
Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax (and, with respect
to New York Municipal Obligations,
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to the exemption of interest thereon from New York State and New York City
personal income tax) are rendered by bond counsel to the respective issuers at
the time of issuance. Neither the Fund nor its investment adviser will review
the proceedings relating to the issuance of Municipal Obligations or the basis
for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Beta Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Beta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or bank wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Beta 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 accompanied by Federal Funds and received by the
Fund after 12:00 noon Eastern Time but prior to 4:00 p.m. Eastern Time, and
orders as to which payment has been converted into Federal Funds after 12:00
noon Eastern Time but prior to 4:00 p.m. Eastern Time on any Business Day of the
Fund, will be executed as of 4:00 p.m. Eastern Time on that Business Day, but
will not be entitled to receive dividends declared on such Business Day. Orders
which are accompanied by Federal Funds and received by the Fund as of 4:00 p.m.
Eastern Time or later, and orders as to which payment has been converted to
Federal Funds as of 4:00 p.m. Eastern Time or later on a Business Day will be
processed as of 12:00 noon Eastern Time on the following Business Day. A
"Business Day" is any day that both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open. Currently, the
NYSE or the FRB are closed on weekends and New Year's Day, Good Friday,
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Memorial Day, Independence Day (observed), Labor Day, Thanksgiving Day and
Christmas Day (observed).
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be
effected through an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Beta 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 Beta 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.
A broker may offer investors maintaining Accounts the ability
to purchase Beta Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Beta Class designated by the investor as
the "Primary Beta Class" for his Purchase Program. The frequency of investments
and the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the designation of the Primary Beta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for
Beta 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.
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DIRECT PURCHASES. An investor may also make direct investments
at any time in any Beta Class he selects through any broker that has entered
into a dealer agreement with the Distributor (a "Dealer"). An investor may make
an initial investment in any of the Beta Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Beta Family" c/o PFPC, P.O. Box 8950, Wilmington, Delaware
19899. The check must specify the name of the Portfolio for which shares are
being purchased. An Application will be returned to the investor unless it
contains the name of the Dealer from whom it was obtained. Subsequent purchases
may be made through a Dealer or 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 in any of the Beta Classes by having his bank or Dealer
wire Federal Funds to the Fund's Custodian, PNC Bank, National Association. An
investor's bank or Dealer 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) 533-7719 (in Delaware call collect (302) 791-1149),
and provide it with your name, address, telephone number, Social
Security or Tax Identification Number, the Beta 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 Dealer to wire the specified
amount, together with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
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.
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For subsequent investments, an investor should follow steps A and B above.
RETIREMENT PLANS. Beta 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 Beta Shares may redeem Beta 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 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.
An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Beta Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request,
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<PAGE>
together with any share certificates issued to the investor, to The Beta Family
c/o PFPC, P.O. Box 8950, Wilmington, Delaware 19899. It is recommended that such
request be sent by registered or certified mail if share certificates accompany
the request. 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, each signature must be guaranteed. A signature guarantee verifies the
authenticity of your signature and the guarantor must be a participant in a
STAMP program (a Securities Transfer Agents Medallion Program). You may call the
Transfer Agent at (800)583-7719 to determine whether the entity that will
guarantee the signature is an eligible guarantor. Guarantees must be signed by
an authorized signatory of the bank, trust company or member firm and "Signature
Guaranteed" must appear with the signature.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE TO
REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800)447-7719 (in Delaware call collect
(302)791-1153). 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.
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
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<PAGE>
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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION requests.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should complete
specimen signature cards, and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank,
as the investor's agent, will cause the Fund to redeem a sufficient number of
full and fractional Shares owned by the investor to cover the amount of the
check. This procedure enables the investor to continue to receive dividends on
those Shares equalling the amount being redeemed by check until such time as the
check is presented to PNC Bank. Checks may not be
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<PAGE>
presented for cash payment at the offices of PNC Bank because, under 1940 Act
rules, redemptions may be effected only at the redemption price next determined
after the redemption request is presented to PFPC. This limitation does not
affect checks used for the payment of bills or cash at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Beta 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on
each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE IS closed on 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 ON
WHICH THE NYSE IS CLOSED (EXCEPT CHRISTMAS DAY (OBSERVED)), 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 each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of
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<PAGE>
Shares." There can be no assurance that net asset value per share will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Beta Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank serves as the sub-ADVISER for each of the
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-ADVISER. PNC Bank and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Philadelphia
area since 1847. PNC Bank 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 Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101, is a wholly owned subsidiary of PNC
Bancorp. PNC Bancorp is a bank holding company and a wholly owned subsidiary of
PNC Bank Corp, a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-ADVISER to all Portfolios other than the New York Municipal Money
Market
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Portfolio, which has no sub-ADVISER, provides research and credit analysis and
provides PIMC with certain other services. In entering into Portfolio
transactions for a Portfolio with a broker, PIMC may take into account the sale
by such broker of shares of the Fund, subject to the requirements of best
execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and the New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-ADVISER. Such sub-advisory fees have
no effect on the advisory fees payable by such Portfolio to PIMC. In addition,
PIMC may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its advisory agreements with the Fund relating to any
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, .05% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and .0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .28%, .12% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
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ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operation, including
matters relating to the maintenance of financial records and accounting. PFPC
will be entitled to an administration fee, computed daily and payable monthly at
a rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These expenses include, but
are not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest, legal fees,
custodian fees, auditing fees, brokerage fees and commissions, certain of the
fees and expenses of registering and qualifying the Portfolio and its shares for
distribution under Federal and state securities laws, expenses of preparing
prospectuses and statements of additional information and of printing and
distributing prospectuses and statements of additional information annually to
existing shareholders that are not attributable to a particular class, the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class, fidelity bond and
directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Portfolio's investment adviser under its advisory agreement with the
Portfolio. Any general expenses of the Fund that are not readily identifiable as
belonging to a particular investment portfolio of the Fund will be allocated
among all investment portfolios of the Fund based
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upon the relative net assets of the investment portfolios at the time such
expenses were accrued. In addition, distribution expenses, transfer agency
expenses, expenses of preparing, printing and distributing prospectuses,
statements of additional information, proxy statements and reports to
shareholders, and registration fees identified as belonging to a particular
class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of each
of the Beta Classes of the Fund pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Beta Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Beta Class a distribution fee, which is accrued daily and paid monthly,
of up to .65% on an annualized basis of the average daily net assets of the
relevant Beta Class. The actual amount of such compensation is agreed upon from
time to time by the Fund's Board of Directors and the Distributor. Under the
Distribution Contracts, the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Beta Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Beta Class on any day to the extent necessary to
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assure that the fee required to be accrued by such Class does not exceed the
income of such Class on that day. In addition, the Distributor may, in its
discretion, voluntarily waive from time to time all or any portion of its
distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Beta Class the
fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor may incur in fulfilling its obligations under a Plan on behalf of
the relevant Beta Class. Thus, under each of the Plans, even if the
Distributor's actual expenses exceed the fee payable to the Distributor
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If the Distributor's actual expenses are less than the fee it
receives, the Distributor will retain the full amount of the fee.
The Plans in effect with respect to the Beta Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will remain
in effect only if approved at least annually by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto
("12b-1 Directors"). Each of the Plans may be terminated at any time by vote of
a majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Beta Class. The fee set forth
above will be paid by the Fund on behalf of the relevant Beta Class to the
Distributor unless and until the relevant Plan is terminated or not renewed.
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DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Beta Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
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taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986, will generally constitute an item of tax preference for corporate and
noncorporate taxpayers in determining Federal alternative minimum tax liability.
The New York Municipal Money Market Portfolio may invest up to 20% of its net
assets in such private activity bonds and the Municipal Money Market Portfolio
may invest up to 100% of its net assets in such private activity bonds, although
the Municipal Money Market Portfolio does not presently intend to do so.
Secondly, tax-exempt interest and "exempt interest dividends" derived from all
Municipal Obligations must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustment for Federal alternative
minimum tax purposes. Investors should be aware of the possibility of state and
local alternative minimum or minimum income tax liability, in addition to
Federal alternative minimum tax. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments. Exempt interest dividends derived from interest on
New York Municipal Obligations will also be exempt from New York State and New
York City personal income (but not corporate franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually the percentages of its
net investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day. In addition, the New York Municipal Money
Market Portfolio will determine annually the percentage amounts exempt from New
York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. The exclusion or exemption of
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interest income for Federal income tax purposes, or New York State or New York
City personal income tax purposes, in most cases does not result in an exemption
under the tax laws of any other state or local authority. Investors who are
subject to tax in other states or localities should consult their own tax
advisers about the taxation of dividends and distributions from each Portfolio
by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and, therefore,
not only would not gain any additional benefit from the Portfolios' dividends
being tax-exempt but also such dividends would be taxable when distributed to
the beneficiary.
Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income tax
consequences described above.
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
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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 BETA CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE BETA CLASSES.
Each share that represents an interest in a Portfolio has an
equal proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a share
has a different class designation than another share representing an interest in
that Portfolio. Shares of the Fund do not have preemptive or conversion rights.
When issued for payment as described in this Prospectus, Shares of the Fund will
be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and
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not by portfolio except as otherwise required by law or when the Board of
Directors determines that the matter to be voted upon affects only the interests
of the shareholders of a particular investment portfolio. (See the Statement of
Additional Information under "Additional Information Concerning Fund Shares" for
examples when the 1940 Act requires voting by investment portfolio or by class.)
Shareholders of the Fund are entitled to one vote for each full share held
(irrespective of class or portfolio) and fractional votes for fractional shares
held. Voting rights are not cumulative and, accordingly, the holders of more
than 50% of the aggregate shares of Common Stock of the Fund may elect all of
the directors.
As of November 6, 1996, to the Fund's knowledge, no person
held of record or beneficially 25% or more of the outstanding shares of all of
the classes of the Fund. The Fund will issue share certificates for any of the
Beta Shares only upon the written request of a shareholder sent to PFPC.
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) 447-1139 (in Delaware call
collect (302) 791-1149).
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BETA FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Beta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Beta Family 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 2
Investment Objectives and Policies ....... 2 6
Directors and Officers ................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 35 36
Portfolio Transactions ................... 40 N/A
Purchase and Redemption Information ...... 41 29
Valuation of Shares ...................... 42 36
Taxes .................................... 44 41
Description of Shares .................... 49 44
Additional Information Concerning Fund
Shares.................................. 51 -
Miscellaneous ............................ 52 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 four
classes of shares (the "Bedford Classes") representing interests in four
investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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<PAGE>
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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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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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon
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to make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's expressed doubts
about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based upon revenues of
$29.508 billion, but budget gaps of $1.6 billion, $1.7 billion and $2.3 billion
in fiscal years 1994, 1995, and 1996, respectively. The 1993-1996 Financial Plan
proposes to eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
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upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
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On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
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Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
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borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes
(and with respect to the Money Market Portfolio only, except for
reverse repurchase agreements) and then in amounts not in excess of 10%
of the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of
at least 300 percent for all borrowings of the Portfolio; or mortgage,
pledge, hypothecate any of its assets except in connection with such
borrowings and then, with respect to the Money Market Portfolio, in
amounts not in excess of 10% of the value of a Portfolio's total assets
at the time of such borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar
amounts borrowed or 10% of the value of a Portfolio's total assets at
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the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and (except for the Municipal Money Market Portfolio)
may enter into repurchase agreements;
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
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acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities of the
parents, and will divide utility companies according to their services. For
example, gas, gas transmission, electric and gas, electric and telephone
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will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
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.
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2. The Money Market Portfolio will limit its purchases of
Second Tier Securities, which are eligible securities other than First
Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of
Second Tier Securities of one issuer to the greater of 1% of its total
assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only if
after such borrowing there is asset coverage of at least 300 percent
for all borrowings of the Portfolio; or mortgage, pledge, hypothecate
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings in
excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral consisting of cash
or securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
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The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at the time
of such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in connection
with such borrowings and then in amounts not in excess of 10% of the
value of a Portfolio's total assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is
not for investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient);
(2) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
29
<PAGE>
(7) invest in oil, gas or mineral exploration or development
programs;
(8) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
30
<PAGE>
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
31
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
Position Principal Occupation
Name, Address and Age with Fund During Past Five Years
- --------------------- --------- ----------------------
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since 1985, Executive
14 Wall Street Vice President of
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc. and Gruntal
Financial Corp.
Francis J. McKay - 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.),
Mart PMM, Inc. (formerly
Pennsauken Merchandise
Mart, Inc.) (shopping
centers); and Since
1975, Director and
Executive Vice President,
Cellucap Mfg. Co., Inc.
(manufacturer of
disposable headwear).
32
<PAGE>
Position Principal Occupation
Name, Address and Age with Fund During Past Five Years
- --------------------- --------- ----------------------
Julian A. Brodsky - 63 Director Director, and Vice
1234 Market Street Chairman, Comcast
16th Floor Corporation; Director,
Philadelphia, PA 19107-3723 Comcast Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (wireless
Communications).
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 Insurance Co.
Edward J. Roach - 72 President and Certified Public
Suite 152 Treasurer Accountant; Vice
Bellevue Park Corporate Chairman of the Board,
Center Fox Chase Cancer
103 Bellevue Parkway Center; Vice President
Wilmington, DE 19809 and Trustee, Pennsylvania
School for the Deaf;
Trustee, Immaculata
College; Vice President
and Treasurer of various
investment companies
advised by PNC
Institutional Management
Corporation.
33
<PAGE>
Position Principal Occupation
Name, Address and Age with Fund During Past Five Years
- --------------------- --------- ----------------------
Morgan R. Jones - 57 Secretary Partner, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Pennsylvania (formerly,
Chairman and Chief
Executive Officer);
Director, Rocking Horse
Child Care Centers of
America, Inc.
- -------------------------
* Mr. Reichman is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Counsellors
Securities Inc., the Fund's distributor.
** Mr. Sablowsky is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Gruntal & Co.,
Inc., a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as
that term is defined in the 1940 Act) of the Fund $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 BRODSKY $12,525
FRANCIS J. MCKAY 15,975
34
<PAGE>
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 sub-advisor to all Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, and the Fund's
custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal Money Market
and New York Municipal Money Market Portfolios and the Fund's transfer and
dividend disbursing agent, and Counsellors Securities Inc. (the "Distributor"),
the Fund's distributor, the Fund itself requires only one part-time employee. No
officer, director or employee of PIMC, PNC Bank, PFPC or the Distributor
currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY
35
<PAGE>
FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES
WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES
WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017
OF ADVISORY FEES WITH RESPECT TO THE NEW YORK MUNIICIPAL MONEY MARKET PORTFOLIO.
FOR THE YEAR ENDED AUGUST 31, 1995, PIMC received (after waivers) $2,274,697 in
advisory fees with respect to the Money Market Portfolio, $67,752 in advisory
fees with respect to the Municipal Money Market Portfolio, $780,122 in advisory
fees with respect to Government Obligations Money Market Portfolio and waived
all of the investment advisory fees payable to it of $187,660 with respect to
the New York Municipal Money Market Portfolio. During the same year, PIMC waived
$2,589,882 of advisory fees with respect to the Money Market Portfolio,
$1,041,321 of advisory fees with respect to the Municipal Money Market
Portfolio, $398,363 of advisory fees with respect to the Government Obligations
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,
$7,733 in advisory fees with respect to the Municipal Money Market Portfolio,
$580,435 in advisory fees with respect to Government Obligations Money Market
Portfolio and waived all of the investment advisory fees payable to it of
$193,386 with respect to the New York Municipal Money Market Portfolio under its
Advisory Contract with the Fund. During the same year, PIMC waived $2,255,986 of
advisory fees with respect to the Money Market Portfolio, $1,091,646 of advisory
fees with respect to the Municipal Money Market Portfolio, $461,938 of advisory
fees with respect to the Government Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining
36
<PAGE>
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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by Shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at
37
<PAGE>
any time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each
of the Advisory Contracts may also be terminated by PIMC or PNC Bank,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Contracts terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
38
<PAGE>
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Beta Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Beta Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Beta Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC, and at an annual rate of $17.00 per account in
each Portfolio for all other orders, exclusive of out-of-pocket expenses and
also receives a fee for each redemption check cleared and reimbursement of its
out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Beta Classes, (collectively, the "Distribution Contracts") and separate
Plans of Distribution for each of the Beta Classes (collectively, the "Plans"),
all of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute
shares of each of the Beta Classes. As compensation for its distribution
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
39
<PAGE>
Each of the Plans relating to the Beta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Beta Class of
the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios was approved by the sole
shareholder of each Beta Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Beta 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 Beta 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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or
40
<PAGE>
less, their portfolio turnover rates will be relatively high. However, because
brokerage commissions will not normally be paid with respect to investments made
by each such Portfolio, the turnover rate should not adversely affect such
Portfolio's net asset value or net income. The Portfolios do not intend to seek
profits through short term trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors
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pursuant to Rule 10f-3 under the 1940 Act. Among other things, these procedures,
which will be reviewed by the Fund's directors annually, require that the
commission paid in connection with such a purchase be reasonable and fair, that
the purchase be at not more than the public offering price prior to the end of
the first business day after the date of the public offer, and that PIMC and PNC
Bank not participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE or the FRB, or both, are closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day (observed), Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day (observed).
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The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
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PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Compound effective yields are computed by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a
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widely-recognized independent service that monitors the performance of mutual
funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount
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and, in the case of debt securities bearing taxable interest income "accrued
market discount") received by a Portfolio at maturity or on disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security for purposes of the
Short-Short Gain Test. However, any other income which is attributable to
realized market appreciation will be treated as gross income from the sale or
other disposition of securities for this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
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exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
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Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest AMT Interest, and any
taxable income recognized by such Portfolio will be distributed and taxed to its
shareholders.
While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
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If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, no Portfolio anticipates
incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
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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, 50 million shares are classified as Class X
Common Stock (U.S. Core Equity), 50 million shares are classified as Class Y
Common Stock (U.S. Core Fixed Income), 50 million shares are classified as Class
Z Common Stock (Global Fixed Income), 50 million shares are classified as Class
AA Common Stock (Municipal Bond), 50 million shares are classified as Class BB
Common Stock (BEA Balanced), 50 million shares are classified as Class CC Common
Stock (Short Duration), 100 million shares are classified as Class DD COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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 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
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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 Beta 1 Common Stock and Class Beta 2 Common Stock, Class Beta 3 Common
Stock and Class Beta 4 Common Stock constitute the Beta Family Classes. Under
the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN
separate "families": the RBB Family, the 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 Warburg Pincus Family represents
interests in the Growth & Income Fund, Balanced Fund and Tax Free Portfolios;
the Sansom Street Family represents interests in the Money Market, Municipal
Money Market and Government Obligations Money Market Portfolios; the Cash
Preservation Family represents interests in the Money Market and Municipal Money
Market Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios; the Bradford Family represents interests in
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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-MANEY MARKET PORTFOLIOS; THE BOSTON
PARTNERS FAMILY REPRESENTS INTERESTS IN ONE NON-MONEY MARKET PORTFOLIO; the
Janney Montgomery Scott Money Funds Family and 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.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
52
<PAGE>
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, serves as counsel to the Fund's independent
directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand L.L.P., 2400 Eleven
Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's independent
accountants. The Fund's financial statements which appear in the Statements of
Additional Information of the Fund relating to the RBB Family, the Cash
Preservation Classes, the Sansom Street Family, the Bedford Family and the
Bradford Family which have been audited by Coopers & Lybrand L.L.P. as set forth
in their reports, which also appear in the Statements of Additional Information
of the Fund relating to the RBB Family, the Cash Preservation Classes, the
Sansom Street Family, the Bedford Family and the Bradford Family, are
incorporated herein and made a part hereof in reliance upon the reports 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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Luanne M. Garvey and Robert J. Garvey 12.7
Portfolio 2729 Woodland Avenue
(Class E) Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
4943 King Arthur Drive
Erie, PA 16506
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
JOHN Robert Estrada and 16.5
Shirley Ann Estrada
1700 Raton Drive
Arlington, TX 76018
ERIC Levine and Linda & Howard Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
MARCELLA L. Haugh Caring TR DTD 8/12/91 15.3
40 Plaza Square
Apt. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Wachovia Bank North Carolina Trust for Carolina 15.7
Portfolio (Class V) Power & Light Co. Supplemental Retirement Trust
301 N. Main Street
Winston-Salem, NC 27101
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
161 Forbes Road, Suite 201
Braintree, MA 02184
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
Carlisle, KY 40311
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
U S EQUITY INVESTMENT PORTFOLIO LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
60
<PAGE>
LITIGATION. There is currently no material litigation
affecting the Fund.
61
<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.
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.
A-1
<PAGE>
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
<PAGE>
PROSPECTUS
THE DELTA FAMILY
MONEY MARKET PORTFOLIO
- -----------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- -----------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION .................................................. 2
FINANCIAL HIGHLIGHTS .......................................... 6
INVESTMENT OBJECTIVES AND POLICIES ............................ 6
PURCHASE AND REDEMPTION OF SHARES ............................. 28
NET ASSET VALUE ............................................... 34
MANAGEMENT .................................................... 35
DISTRIBUTION OF SHARES ........................................ 39
DIVIDENDS AND DISTRIBUTIONS ................................... 40
TAXES ......................................................... 40
DESCRIPTION OF SHARES ......................................... 43
OTHER INFORMATION ............................................. 45
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PNC Bank Financial
Processing Corporation
Wilmington, Delaware
COUNSEL
<PAGE>
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE DELTA FAMILY
OF
THE RBB FUND, INC.
The Delta Family consists of four classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Delta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT OR ANY GOVERNMENTAL AGENCY. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
PNC Institutional Management Corporation serves as investment
adviser for the Fund, PNC Bank, National Association (PNC BANK") serves as sub-
ADVISER for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-ADVISER, and serves as custodian for the Fund,
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor for the
Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Delta Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or
2
<PAGE>
its agencies or instrumentalities, and enters into repurchase agreements
relating to such obligations.
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios 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-advisor to all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-advisor, and serves as custodian to the Fund, and
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and 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 any of the Delta
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Delta Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." Any or all of the Portfolios, 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
Delta Shares, please refer to the section of this Prospectus entitled "Purchase
and Redemption of Shares."
3
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (DELTA CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS (2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after
waivers)(1)........... .20% .05% .30% 0%
12b-1 fees (after
waivers)(1)........... .55 .55 .57 .51
Other Expenses (after
reimbursements)....... .22 .24 .105 .27
Total Fund Operating
Expenses (Delta
Classes) (after waivers
and reimbursements)... .97% .84% .975% .78%
==== ===== ===== ====
<FN>
(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,
MUNICIPAL MONEY MARKET PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO, MANAGEMENT FEES
WOULD BE .55%, .55%, .57% AND .35%, RESPECTIVELY; 12B-1 FEES WOULD BE .55%,
.55%, .57% AND .51%, RESPECTIVELY; OTHER EXPENSES WOULD BE .22%, .24%, .11%
AND .28%, RESPECTIVELY AND TOTAL FUND OPERATING EXPENSES WOULD BE 1.14%,
1.12%, 1.10% AND 1.14%, RESPECTIVELY.
</FN>
</TABLE>
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:
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
Money Market*........... $10 $31 N/A N/A
Municipal Money
Market*................ $ 9 $27 N/A N/A
Government Obligations
Money Market*.......... $10 $31 N/A N/A
New York Municipal
Money Market........... $ 8 $25 N/A N/A
* Other classes of these Portfolios are sold with different
fees and expenses.
4
<PAGE>
THE EXAMPLE IN THE FEE TABLE ASSUMES THAT ALL DIVIDENDS AND
DISTRIBUTIONS ARE REINVESTED AND THAT THE AMOUNTS LISTED UNDER "ANNUAL FUND
OPERATING EXPENSES (DELTA CLASSES) 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 Delta
Classes of the Fund will bear directly or indirectly. (For more complete
descriptions of the various costs and expenses, see "Management--Investment
Adviser and Sub-Advisor" and "Distribution of Shares" below.) The expense
figures are based on estimated costs and estimated fees expected to be charged
to the Delta Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management fees will not vary from the figure reflected in the Fee Table. To the
extent that any service providers assume additional expenses of the Portfolios,
such assumption will have the effect of lowering a Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of Federal,
New York State and New York City personal income taxes at stated rates.
5
<PAGE>
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Delta Classes 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 the Delta Classes
are not reflected in the yields of the Delta Shares, and such fees, if charged,
will reduce the actual return received by shareholders on their investments. The
yield on Shares of the Delta Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA IS SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS OF THE DATE OF
THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
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
6
<PAGE>
adviser deems the instrument to present minimal credit risks. Such investments
may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. The Portfolio may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper
rated (at the time of purchase) in the two highest rating categories of a
nationally recognized statistical rating organization ("NRSRO"). These rating
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
7
<PAGE>
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
Securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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
8
<PAGE>
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".
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in ILLIQUID securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
9
<PAGE>
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 investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") (e.g., commercial paper rated "A-1" or "A-2" by
S&P) (3) securities that are rated at the time of purchase by the only NRSRO
rating the security in one of its two highest rating categories for such
securities, and (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to eligible rated securities. For a more complete description of
eligible securities, see "Investment Objectives and Policies" in the Statement
of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
which have a maturity of longer than seven days, time deposits with maturities
in excess of seven days, variable rate demand notes with demand periods in
excess of seven
10
<PAGE>
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
11
<PAGE>
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 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
12
<PAGE>
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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective
is to provide as high a level of current interest income exempt from Federal
income taxes as is consistent with maintaining liquidity and relative stability
of principal. The Municipal Money Market Portfolio invests substantially all of
its assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During periods
of normal market conditions, at least 80% of the net assets of the Municipal
Money Market Portfolio will be invested in Municipal Obligations. Municipal
Obligations include securities the interest on which is Tax-Exempt Interest,
although to the extent the Portfolio invests in certain private activity bonds
issued after August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of
the interest earned by the Portfolio may constitute an item of tax preference
for purposes of the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
13
<PAGE>
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable obligations bearing Tax-Exempt Interest
or AMT Interest are unavailable. There is no percentage limitation on the amount
of assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations
are "general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other
15
<PAGE>
reasons, suffer a loss to the extent of the default. The Portfolio invests in
variable rate demand notes only when the Portfolio's investment adviser deems
the investment to involve minimal credit risk. The Portfolio's investment
adviser also monitors the continuing creditworthiness of issuers of such notes
to determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions
of prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal
15
<PAGE>
amount thereof. In some cases, Municipal Obligations are represented by
custodial receipts evidencing rights to future principal or interest payments,
or both, on underlying municipal securities held by a custodian and such
receipts include the option to tender the underlying securities to the sponsor
(usually a bank, broker-dealer or other financial institution). Although the
Internal Revenue Service has not ruled on whether the interest received on
derivative securities in the form of participation interests or custodial
receipts is Tax-Exempt Interest, opinions relating to the validity of, and the
tax-exempt status of payments received by, the Portfolio from such derivative
securities are rendered by counsel to the respective sponsors of such
derivatives and relied upon by the Portfolio in purchasing such securities.
Neither the Portfolio nor its investment adviser will review the proceedings
relating to the creation of any tax-exempt derivative securities or the basis
for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio
will only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities".
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities, FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES - PLANNING
MARKET PORTFOLIO -ILLIQUID SECURITIES" AND See "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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
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assurance that the investment objective of the Municipal Money Market Portfolio
will be achieved. The Municipal Money Market Portfolio may not, however, change
the following investment limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of
the Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
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So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that
the foregoing condition shall only be applicable with respect to 75%
of the Municipal Money Market Portfolio's total assets. A "Put" means
a right to sell a specified underlying instrument within a specified
period of time and at a specified exercise price that may be sold,
transferred or assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's
investment objective is to provide as high a level of current interest income as
is consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The
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Portfolio will invest in the obligations of such agencies or instrumentalities
only when the investment adviser believes that the credit risk with respect
thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. For this and other
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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.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average
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remaining life of mortgage-related securities for the Portfolio, the investment
adviser will rely on such data to evaluate the prepayment risk in a particular
security except to the extent such data are deemed unreasonable by the
investment adviser. The investment adviser might deem such data unreasonable if
such data appeared to present a significantly different average remaining
expected life for a security when compared to data relating to the average
remaining life of comparable securities as provided by other independent
mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
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kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES SEE "INVESTMENT OBJECTIVES AND POLICIES MONEY MARKET
PORTFOLIO - ILLIQUID SECURITIES" AND "Investment Objectives and Policies--
Illiquid Securities" in the Statement of Additional Information.
The Government Obligations 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
the Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved.
The investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
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<PAGE>
3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10%
of the Portfolio's annual gross income (without offset for realized
capital gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete
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discussion of Municipal Obligations, see "Investment Objectives and Policies--
Municipal Money Market Portfolio MUNICIPAL OBLIGATIONS."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal
Money Market Portfolio may invest in tax-exempt derivative securities such as
tender option bonds, custodial receipts, participations, beneficial interests in
trusts and partnership interests. For a description of such securities, see
"Investment Objectives and Policies--Municipal Money Market
Portfolio--Tax-Exempt Derivative Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--^ Money Market
Portfolio--Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by
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Moody's or S&P; commercial paper rated in the highest grade by Moody's or S&P;
and certificates of deposit issued by United States branches of United States
banks with assets of $1 billion or more. At no time will more than 20% of the
Portfolio's total assets be invested in taxable short-term securities unless the
Portfolio's investment adviser has determined to temporarily adopt a defensive
investment policy in the face of an anticipated softening in the market for
Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities" . For a more complete
description of eligible securities, see "Investment OBJECTIVES AND POLICIES
MONEY MARKET PORTFOLIO - ELIGIBLE SECURITIES AND "INVESTMENT Objectives and
Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security. In
the opinion of the Portfolio's investment adviser, any risk to the Portfolio
should be limited by its intention to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended, and by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for
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the payment of principal and interest on their securities. New York State and
New York City face long-term worsening economic problems which could seriously
affect their ability and that of other issuers of New York Municipal Obligations
to meet their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. In recent years, several different
issues of municipal securities of New York State and its agencies and
instrumentalities and of New York City have been downgraded by Standard and
Poor's Corporation ("S&") and Moody's Investor Service, Inc. ("Moody's"). On the
other hand, strong demand for New York Municipal Obligations has more recently
had the effect of permitting New York Municipal Obligations to be issued with
yields relatively lower, and after issuance to trade in the market at prices
relatively higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations. Although no issuers of New York Municipal
Obligations were as of the date of this Prospectus in default with respect to
the payment of their debt obligations, the occurrence of any such default could
adversely affect the shares. Some of the significant financial considerations
relating to the Fund's investments in New York obligations are summarized in the
Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO - ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money Market Portfolio's outstanding shares. 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 New
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York Municipal Money Market will be achieved. The New York Municipal Money
Market Portfolio may not, however, change the following investment limitations
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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that this
limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for
the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second
investment limitation above) shall not be deemed to be Municipal
Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments
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in addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the New York
Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
Opinions relating to the validity of Municipal Obligations
and to the exemption of interest thereon from Federal income tax (and, with
respect to New York Municipal Obligations, to the exemption of interest thereon
from New York State and New York City personal income tax) are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Fund nor
its investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Delta Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Delta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or bank wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Delta
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
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Day. Orders which are accompanied by Federal Funds and received by the Fund
after 12:00 noon Eastern Time but prior to 4:00 p.m. Eastern Time, and orders as
to which payment has been converted into Federal Funds after 12:00 noon Eastern
Time but prior to 4:00 p.m. Eastern Time on any Business Day of the Fund, will
be executed as of 4:00 p.m. Eastern Time on that Business Day, but will not be
entitled to receive dividends declared on such Business Day. Orders which are
accompanied by Federal Funds and received by the Fund as of 4:00 p.m. Eastern
Time or later, and orders as to which payment has been converted to Federal
Funds as of 4:00 p.m. Eastern Time or later on a Business Day will be processed
as of 12:00 noon Eastern Time on the following Business Day. A "Business Day" is
any day that both the New York Stock Exchange (the "NYSE") and the Federal
Reserve Bank of Philadelphia (the "FRB") are open.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be
effected through an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Delta 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 Delta 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.
A broker may offer investors maintaining Accounts the ability
to purchase Delta Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Delta Class designated by the investor
as the "Primary Delta Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the
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broker. A participant in a Purchase Program may change the designation of the
Primary Delta Class at any time by so instructing his broker.
If a broker makes special arrangements under which orders for
Delta 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.
DIRECT PURCHASES. An investor may also make direct
investments at any time in any Delta Class he selects through any broker that
has entered into a dealer agreement with the Distributor (a "Dealer"). An
investor may make an initial investment in any of the Delta Classes by mail by
fully completing and signing an application obtained from a Dealer (the
"Application"), specifying the Portfolio in which he wishes to invest, and
mailing it, together with a check payable to "The Delta Family" c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. The check must specify the name of the
Portfolio for which shares are being purchased. An Application will be returned
to the investor unless it contains the name of the Dealer from whom it was
obtained. Subsequent purchases may be made through a Dealer or 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 in any of the Delta Classes by having his bank or
Dealer wire Federal Funds to the Fund's Custodian, PNC Bank, National
Association. An investor's bank or Dealer 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) 447-1139 (in Delaware call collect (302) 791-1149),
and provide it with your name, address, telephone number, Social
Security or Tax Identification Number, the Delta 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 Dealer to wire the specified
amount, together with your assigned account number, to the Custodian:
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PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Delta 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 Delta Shares may redeem Delta 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 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.
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An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Delta Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Delta Family c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. 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, each signature must be guaranteed. A signature guarantee verifies the
authenticity of your signature and the guarantor must be a participant in a
STAMP program (a Securities Transfer Agents Medallion Program). You may call the
Transfer Agent at (800) 583-7719 to determine whether the entity that will
guarantee the signature is on eligible guarantor.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE
TO REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800) 447-7719 (in Delaware call collect (302)
791-1153). The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and of 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. The Fund may modify this redemption service at
any time or charge a service fee upon prior
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notice to shareholders. No fee is currently contemplated. 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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should complete
specimen signature cards, and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting
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<PAGE>
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 REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Delta 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on
each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE IS closed on the customary national
business holidays of New Year's Day, President's 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)), VETERANS DAY AND
COLUMBUS DAY. Each Portfolio's net asset value per share is calculated by adding
the value of all
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securities and other assets of the Portfolio, subtracting its liabilities and
dividing the result by the number of its outstanding shares. The net asset value
per share of each Portfolio is determined independently of any of the Fund's
other investment portfolios.
The Fund seeks to maintain for each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Delta Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank serves as the sub-ADVISER for each of the
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-ADVISER. PNC Bank and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Philadelphia
area since 1847. PNC Bank 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 Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101, is a wholly owned subsidiary of PNC
Bancorp, Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned
subsidiary of PNC Bank Corp, a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-ADVISER to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER, provides research and credit
analysis and provides PIMC with certain other services. In entering into
Portfolio transactions for a Portfolio with a broker, PIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
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<PAGE>
PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees have no
effect on the advisory fees payable by such Portfolio to PIMC. In addition, PIMC
may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its advisory agreements with the Fund relating to any
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, .05% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and 0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .28%, .12% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operation, including
matters relating to the maintenance of financial records and accounting. PFPC
will be entitled to an administration fee, computed daily and payable monthly at
a rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of
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Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These expenses include, but
are not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest, legal fees,
custodian fees, auditing fees, brokerage fees and commissions, certain of the
fees and expenses of registering and qualifying the Portfolio and its shares for
distribution under Federal and state securities laws, expenses of preparing
prospectuses and statements of additional information and of printing and
distributing prospectuses and statements of additional information annually to
existing shareholders that are not attributable to a particular class, the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class, fidelity bond and
directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Portfolio's investment adviser under its advisory agreement with the
Portfolio. Any general expenses of the Fund that are not readily identifiable as
belonging to a particular investment portfolio of the Fund will be allocated
among all investment portfolios of the Fund based upon the relative net assets
of the investment portfolios at the time such expenses were accrued. In
addition, distribution expenses, transfer agency expenses, expenses of
preparing, printing and distributing prospectuses, statements of additional
information, proxy statements and reports to shareholders, and registration fees
identified as belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
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DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of each
of the Delta Classes of the Fund pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Delta Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Delta Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Delta Class. The actual amount of such compensation is agreed upon
from time to time by the Fund's Board of Directors and the Distributor. Under
the Distribution Contracts the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Delta Class on an Annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Delta Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Delta Class
the fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor
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<PAGE>
may incur in fulfilling its obligations under a Plan on behalf of the relevant
Delta Class. Thus, under each of the Plans, even if the Distributor's actual
expenses exceed the fee payable to the Distributor thereunder at any given time,
the Fund will not be obligated to pay more than that fee. If the Distributor's
actual expenses are less than the fee it receives, the Distributor will retain
the full amount of the fee.
The Plans in effect with respect to the Delta Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will remain
in effect only if approved at least annually by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto
("12b-1 Directors"). Each of the Plans may be terminated at any time by vote of
a majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Delta Class. The fee set forth
above will be paid by the Fund on behalf of the relevant Delta Class to the
Distributor unless and until the relevant Plan is terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Delta Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in
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the Portfolios should consult their tax advisers with specific reference to
their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of
net long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986, will generally constitute an item of tax preference for corporate and
noncorporate taxpayers in determining Federal alternative minimum tax liability.
The New York Municipal Money Market Portfolio may invest up to 20% of its net
assets in such private activity bonds and the Municipal Money Market Portfolio
may invest up to 100% of its net assets in such private activity bonds, although
the Municipal Money Market Portfolio does not presently intend to do so.
Secondly, tax-exempt interest and "exempt interest dividends" derived from all
Municipal Obligations must be taken
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into account by corporate taxpayers in determining their adjusted current
earnings adjustment for Federal alternative minimum tax purposes. Investors
should be aware of the possibility of state and local alternative minimum or
minimum income tax liability, in addition to Federal alternative minimum tax.
Shareholders who are recipients of Social Security Act or Railroad Retirement
Act benefits should further note that tax-exempt interest and "exempt interest
dividends" derived from all types of Municipal Obligations will be taken into
account in determining the taxability of their benefit payments. Exempt interest
dividends derived from interest on New York Municipal Obligations will also be
exempt from New York State and New York City personal income (but not corporate
franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually the percentages of its
net investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day. In addition, the New York Municipal Money
Market Portfolio will determine annually the percentage amounts exempt from New
York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. The exclusion or exemption of interest income for Federal
income tax purposes, or New York State or New York City personal income tax
purposes, in most cases does not result in an exemption under the tax laws of
any other state or local authority. Investors who are subject to tax in other
states or localities should consult their own tax advisers about the taxation of
dividends and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
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An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and, therefore,
not only would not gain any additional benefit from the Portfolios' dividends
being tax-exempt but also such dividends would be taxable when distributed to
the beneficiary.
Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income tax
consequences described above.
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 effect 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.
43
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THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION INCORPORATED HEREIN
RELATE PRIMARILY TO THE DELTA CLASSES AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE
AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS RELATING TO THE DELTA
CLASSES.
Each share that represents an interest in a Portfolio has an
equal proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a share
has a different class designation than another share representing an interest in
that Portfolio. Shares of the Fund do not have preemptive or conversion rights.
When issued for payment as described in this Prospectus, Shares of the Fund will
be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of November 6, 1996, to the Fund's knowledge, no person
held of record or beneficially 25% or more of the outstanding shares of all of
the classes of the Fund.
The Fund will issue share certificates for any of the Delta
Shares only upon the written request of a shareholder sent to PFPC.
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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) 447-1139 (in Delaware call
collect (302) 791-1149).
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DELTA FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Delta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio (formerly the Tax-Free Money Market Portfolio), the
Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio. This Statement of Additional Information is not a prospectus,
and should be read only in conjunction with the Delta Family 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 2
Investment Objectives and Policies ............. 2 6
Directors and Officers.......................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements........................ 35 36
Portfolio Transactions.......................... 40 N/A
Purchase and Redemption Information............. 42 29
Valuation of Shares............................. 42 35
Taxes........................................... 45 41
Description of Shares........................... 49 44
Additional Information Concerning Fund
Shares........................................ 51
Miscellaneous................................... 52 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 four classes of shares (the "Bedford Classes") representing
interests in four investment portfolios (the "Portfolios") of the Fund: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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<PAGE>
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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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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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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<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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
8
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
contractual-obligation financing arrangements and has never been called upon
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to make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's expressed doubts
about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based
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upon revenues of $29.508 billion, but budget gaps of $1.6 billion, $1.7 billion
and $2.3 billion in fiscal years 1994, 1995, and 1996, respectively. The
1993-1996 Financial Plan proposes to eliminate these gaps through a program of
City, State and Federal actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
21
<PAGE>
On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
22
<PAGE>
Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
23
<PAGE>
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO. Neither
the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes
(and with respect to the Money Market Portfolio only, except for
reverse repurchase agreements) and then in amounts not in excess of 10%
of the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of
at least 300 percent for all borrowings of the Portfolio; or mortgage,
pledge, hypothecate any of its assets except in connection with such
borrowings and then, with respect to the Money Market Portfolio, in
amounts not in excess of 10% of the value of a Portfolio's total assets
at the time of such borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar
24
<PAGE>
amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and (except for the Municipal Money Market Portfolio)
may enter into repurchase agreements;
25
<PAGE>
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
26
<PAGE>
of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
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.
27
<PAGE>
2. The Money Market Portfolio will limit its purchases of
Second Tier Securities, which are eligible securities other than First
Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of
Second Tier Securities of one issuer to the greater of 1% of its total
assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only if
after such borrowing there is asset coverage of at least 300 percent
for all borrowings of the Portfolio; or mortgage, pledge, hypothecate
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings in
excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral consisting of cash
or securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
28
<PAGE>
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at the time
of such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in connection
with such borrowings and then in amounts not in excess of 10% of the
value of a Portfolio's total assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is
not for investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient);
(2) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development
programs;
29
<PAGE>
(8) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
30
<PAGE>
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
31
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since 1985, Executive
14 Wall Street Vice President of
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc. and Gruntal
Financial Corp.
Francis J. McKay - 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.),
Mart PMM, Inc. (formerly
Pennsauken Merchandise
Mart, Inc.) (shopping
centers); and Since
1975, Director and
Executive Vice President,
Cellucap Mfg. Co., Inc.
(manufacturer of
disposable headwear).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Julian A. Brodsky - 63 Director Director, Vice Chairman
1234 Market Street Comcast Corporation;
16th Floor Director, Comcast
Philadelphia, PA 19107-3723 Corporation; Director,
Comcast Cablevision of Philadelphia
(cable television and
communications) Nextel
(Wireless Communications).
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 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
103 Bellevue Parkway Center; Vice President
Wilmington, DE 19809 and Trustee, Pennsylvania
School for the Deaf;
Trustee, Immaculata
College; Vice President
and Treasurer of various
investment companies
advised by PNC Bank,
Institutional Management
Corporation.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Morgan R. Jones - 57 Secretary Partner, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Pennsylvania (formerly,
Chairman and Chief
Executive Officer);
Director, Rocking Horse Child Care
Centers of America, Inc.
- -------------------------
<FN>
* Mr. Reichman is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Counsellors
Securities Inc., the Fund's distributor.
** Mr. Sablowsky is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Gruntal & Co.,
Inc., a broker-dealer.
</FN>
</TABLE>
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
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 Von
Roden receives an additional $5,000 for his services.
34
<PAGE>
------ 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 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 Bank, National
Association Institutional Management Corporation ("PIMC"), the Fund's adviser,
PNC Bank, National Association ("PNC Bank"), the sub-ADVISER to all Portfolios
other than the New York Municipal Money Market Portfolio, which has no sub-
ADVISER, and the Fund's custodian, PNC Bank ("PFPC"), the administrator to the
Municipal Money Market and New York Municipal Money Market Portfolios and the
Fund's transfer and dividend disbursing agent, and Counsellors Securities Inc.
(the "Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank, and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
35
<PAGE>
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES WITH RESPECT TO THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017 OF ADVISORY FEES WITH RESPECT TO
THE NEW YORK MUNIICIPAL MONEY MARKET PORTFOLIO.FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $2,274,697 in advisory fees with respect to
the Money Market Portfolio, $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio, $780,122 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $187,660 with respect to the New York Municipal
Money Market Portfolio. During the same year, PIMC waived $2,589,882 of advisory
fees with respect to the Money Market Portfolio, $1,041,321 of advisory fees
with respect to the Municipal Money Market Portfolio, $398,363 of advisory fees
with respect to the Government Obligations 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, $7,733 in advisory fees with respect
to the Municipal Money Market Portfolio, $580,435 in advisory fees with respect
to Government Obligations Money Market Portfolio and waived all of the
investment advisory fees payable to it of $193,386 with respect to the New York
Municipal Money Market Portfolio under its Advisory Contract with the Fund.
During the same year, PIMC waived $2,255,986 of advisory fees with respect to
the Money Market Portfolio, $1,091,646 of advisory fees with respect to the
Municipal Money Market Portfolio, $461,938 of advisory fees with respect to the
Government Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of
36
<PAGE>
securities purchased or sold by a portfolio and any losses incurred in
connection therewith; (b) fees payable to and expenses incurred on behalf of a
portfolio by PIMC; (c) expenses of organizing the Fund that are not attributable
to a class of the Fund; (d) certain of the filing fees and expenses relating to
the registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional information and supplements thereto to existing shareholders, as
well as reports to shareholders and proxy material that are not attributable to
a class; (m) any extraordinary expenses; (n) fees, voluntary assessments and
other expenses incurred in connection with membership in investment company
organizations; (o) costs of mailing and tabulating proxies and costs of
shareholders' and directors' meetings; (p) costs of PIMC's use of independent
pricing services to value a portfolio's securities; and (q) the cost of
investment company literature and other publications provided by the Fund to its
directors and officers. Distribution expenses, transfer agency expenses,
expenses of preparation, printing and mailing prospectuses, statements of
additional information, proxy statements and reports to shareholders, and
organizational expenses and registration fees, identified as belonging to a
particular class of the Fund, are allocated to such class.
Under the Advisory Contracts, PIMC and PNC Bank will not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Fund or a Portfolio in connection with the performance of the Advisory
Contracts, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of PIMC or PNC Bank in the performance of their
respective duties or from reckless disregard of their duties and obligations
thereunder.
The Advisory Contracts were each most recently approved 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market
37
<PAGE>
Portfolio by shareholders at a special meeting held June 10, 1992, as adjourned
and the sub-advisory agreement was approved with respect to the Municipal Money
Market Portfolio by Shareholders at a special meeting held on December 22, 1989.
The Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank, (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next
39
<PAGE>
$50 million of average daily gross assets; and $.15 per $1,000 on average daily
gross assets over $100 million, with a minimum monthly fee of $1,000 per
Portfolio, exclusive of transaction charges and out-of-pocket expenses, which
are also charged to the Fund.
PFPC, an affiliate of PNC Bank, National Association, serves
as the transfer and dividend disbursing agent for the Fund's Delta Classes
pursuant to a Transfer Agency Agreement dated November 5, 1991 and supplements
dated November 5, 1991 (the "Transfer Agency Agreement"), under which PFPC (a)
issues and redeems shares of each of the Delta Classes, (b) addresses and mails
all communications by each Portfolio to record owners of shares of each such
Class, including reports to shareholders, dividend and distribution notices and
proxy materials for its meetings of shareholders, (c) maintains shareholder
accounts and, if requested, sub-accounts and (d) makes periodic reports to the
Fund's Board of Directors concerning the operations of each Delta Class. PFPC
may, on 30 days' notice to the Fund, assign its duties as transfer and dividend
disbursing agent to any other affiliate of PNC Bank Corp. For its services to
the Fund under the Transfer Agency Agreement, PFPC receives a fee at the annual
rate of $15.00 per account in each Portfolio for orders which are placed via
third parties and relayed electronically to PFPC, and at an annual rate of
$17.00 per account in each Portfolio for all other orders, exclusive of
out-of-pocket expenses and also receives a fee for each redemption check cleared
and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Delta Classes, (collectively, the "Distribution Contracts") and separate
Plans of Distribution for each of the Delta Classes (collectively, the "Plans"),
all of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute
shares of each of the Delta Classes. As compensation for its distribution
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes
39
<PAGE>
to reallow up to all of its distribution payments to broker/dealers for selling
shares of each of the Portfolios based on a percentage of the amounts invested
by their customers.
Each of the Plans relating to the Delta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Delta Class of
the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios was approved by the sole
shareholder of each Delta Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Delta 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 Delta 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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
40
<PAGE>
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank, National Association or any affiliated person of the foregoing entities
except to the extent permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
41
<PAGE>
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank, National Association 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 a Portfolio is concerned, in other cases it is believed to be beneficial to a
Portfolio. A Portfolio will not purchase securities during the existence of any
underwriting or selling group relating to such security of which PIMC or PNC
Bank, National Association 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, National Association not participate in or benefit from the
sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
42
<PAGE>
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE or the FRB, or both, are closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day (observed), Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day (observed).
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
43
<PAGE>
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Compound effective yields are computed by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
44
<PAGE>
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a widely-recognized independent
service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
45
<PAGE>
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
46
<PAGE>
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such
47
<PAGE>
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.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 31% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
48
<PAGE>
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, no Portfolio anticipates
incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
49
<PAGE>
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 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, 50 million shares are classified as Class X
Common Stock (U.S. Core Equity), 50 million shares are classified as Class Y
Common Stock (U.S. Core Fixed Income), 50 million shares are classified as Class
Z Common Stock (Global Fixed Income), 50 million shares are classified as Class
AA Common Stock (Municipal Bond), 50 million shares are classified as Class BB
Common Stock (BEA Balanced), 50 million shares are classified as Class CC Common
Stock (Short Duration), 100 million shares are classified as Class DD COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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
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<PAGE>
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 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 Classes Epsilon 1, Epsilon 2,
Epsilon 3, and Epsilon 4 Common Stock constitute the Epsilon Family Classes.
Under the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen
separate "families": the RBB FAMILY, the Cash Preservation Family, the
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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 Warburg Pincus Family
represents interests in the Growth & Income Fund, Balanced Fund and Tax Free
Portfolios; the Sansom Street Family represents interests in the Money Market,
Municipal Money Market and Government Obligations Money Market Portfolios; the
Cash Preservation Family represents interests in the Money Market and Municipal
Money Market Portfolios; the Bedford Family represents interests in the Money
Market, Municipal Money Market, Government Obligations 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 MARKETS PORTFOLIOS; THE
BOSTON PARTNERS FAMILY REPRESENTS INTERESTS IN ONE NON-MONEY MARKET PORTFOLIO;
the Janney Montgomery Scott Money Funds Family and Beta, Gamma, Delta, 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.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if
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<PAGE>
approved by the holders of a majority of the outstanding voting securities of
such portfolio. However, the Rule also provides that the ratification of the
selection of independent public accountants, the approval of principal
underwriting contracts and the election of directors are not subject to the
separate voting requirements and may be effectively acted upon by shareholders
of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, serves as counsel to the Fund's independent
directors.
INDEPENDENT ACCOUNTANTS. Coopers & Lybrand, L.L.P., 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103, serves as the Fund's
independent accountants. The Fund's financial statements which appear in the
Statements of Additional Information of the Fund relating to the RBB Family, the
Cash Preservation Classes, the Sansom Street Family, the Bedford Family and the
Bradford Family which have been audited by Coopers & Lybrand L.L.P. as set forth
in their reports, which also appear in the Statements of Additional Information
of the Fund relating to the RBB Family, the Cash Preservation Classes, the
Sansom Street Family, the Bedford Family and the Bradford Family, are
incorporated herein and made a part hereof in reliance upon the reports 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.
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<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
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
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BRADFORD MUNICIPAL MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA Emerging Markets Equity Wachovia Bank North Carolina Trust for Carolina 15.7
Portfolio (Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA US Core Fixed Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
61
<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
<PAGE>
PROSPECTUS
THE GAMMA FAMILY
MONEY MARKET PORTFOLIO
- -----------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- -----------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
DECEMBER 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION ....................................................... 2
FINANCIAL HIGHLIGHTS ............................................... 6
INVESTMENT OBJECTIVES AND POLICIES ................................. 6
PURCHASE AND REDEMPTION OF SHARES .................................. 28
NET ASSET VALUE .................................................... 34
MANAGEMENT ......................................................... 35
DISTRIBUTION OF SHARES ............................................. 38
DIVIDENDS AND DISTRIBUTIONS ........................................ 40
TAXES .............................................................. 40
DESCRIPTION OF SHARES .............................................. 43
OTHER INFORMATION .................................................. 44
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
<PAGE>
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE GAMMA FAMILY
OF
THE RBB FUND, INC.
The Gamma Family consists of four classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Gamma Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT OR ANY GOVERNMENTAL AGENCY. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
PNC Institutional Management Corporation serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC BANK") serves as
sub-ADVISER for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-ADVISER, and serves as custodian for the Fund,
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor for the
Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Gamma Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or
2
<PAGE>
its agencies or instrumentalities, and enters into repurchase agreements
relating to such obligations.
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios 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-advisor to all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-advisor, and serves as custodian to the Fund, and
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolio and 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 any of the Gamma
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Gamma Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." Any or all of the Portfolios, 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
Gamma Shares, please refer to the section of this Prospectus entitled "Purchase
and Redemption of Shares."
3
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (GAMMA CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS (2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after
waivers)(1)............. .20% .05% .30% 0%
12b-1 fees (after
waivers)(1)............. .55 .55 .57 .51
Other Expenses (after
reimbursements)......... .22 .24 .105 .27
Total Fund Operating
Expenses (Gamma
Classes) (after
waivers and
reimbursements)......... .97% .84% .975% .78%
===== ==== ===== ====
<FN>
(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,
MUNICIPAL MONEY MARKET PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO, MANAGEMENT FEES WOULD BE .31%,
.33%, % AND .35%, RESPECTIVELY; 12B-1 FEES WOULD BE .55%, .55%, .57% AND .51%,
RESPECTIVELY; OTHER EXPENSES WOULD BE .22%, .24%, .11% AND .28%, RESPECTIVELY
AND TOTAL FUND OPERATING EXPENSES WOULD BE 1.14%, 1.12%, 1.10% AND 1.14%,
RESPECTIVELY.
</FN>
</TABLE>
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:
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
Money Market*........... $10 $31 N/A N/A
Municipal Money
Market*................ $ 9 $27 N/A N/A
Government Obligations
Money Market*.......... $10 $31 N/A N/A
New York Municipal
Money Market........... $ 8 $25 N/A N/A
* Other classes of these Portfolios are sold with different fees and expenses.
4
<PAGE>
THE EXAMPLE IN THE FEE TABLE ASSUMES THAT ALL DIVIDENDS AND
DISTRIBUTIONS ARE REINVESTED AND THAT THE AMOUNTS LISTED UNDER "ANNUAL FUND
OPERATING EXPENSES (GAMMA CLASSES) 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 Gamma
Classes 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 estimated costs and estimated fees expected to be charged
to the Gamma Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management fees will not vary from the figure reflected in the Fee Table. To the
extent that any service providers assume additional expenses of the Portfolios,
such assumption will have the effect of lowering a Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of Federal,
New York State and New York City personal income taxes at stated rates.
5
<PAGE>
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Gamma Classes 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 the Gamma Classes
are not reflected in the yields of the Gamma Shares, and such fees, if charged,
will reduce the actual return received by shareholders on their investments. The
yield on Shares of the Gamma Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA IS SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS OF THE DATE OF
THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
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.
6
<PAGE>
Such investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. The Portfolio may
also make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper
rated (at the time of purchase) in the two highest rating categories of a
nationally recognized statistical rating organization (NRSRO"). These rating
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on
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its payment obligation, the Portfolio might be unable to dispose of the note
because of the absence of an active secondary market. For this or other reasons,
the Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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 care receivables or other assets and collateralized mortgage
obligations ("CMOs") issued or guaranteed by U.S. Government agencies and,
instrumentalities or issued by private
8
<PAGE>
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 purpose. See "Investment Limitations."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held
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<PAGE>
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 investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") (e.g., commercial paper rated "A-1" or "A-2" by
S&P), (3) securities that are rated at the time of purchase by the only NRSRO
rating the security in one of its two highest rating categories for such
securities, and (4) 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
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<PAGE>
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
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<PAGE>
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 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
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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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During periods
of normal market conditions, at least 80% of the net assets of the Municipal
Money Market Portfolio will be invested in Municipal Obligations. Municipal
Obligations include securities the interest on which is Tax-Exempt Interest,
although to the extent the Portfolio invests in certain private activity bonds
issued after August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of
the interest earned by the Portfolio may constitute an item of tax preference
for purposes of the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable obligations bearing Tax-Exempt Interest
or AMT Interest are unavailable. There is no percentage limitation on the amount
of
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<PAGE>
assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve minimal credit risk. The
Portfolio's investment adviser also monitors the continuing creditworthiness of
issuers of such notes
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<PAGE>
to determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor
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<PAGE>
(usually a bank, broker-dealer or other financial institution). Although the
Internal Revenue Service has not ruled on whether the interest received on
derivative securities in the form of participation interests or custodial
receipts is Tax-Exempt Interest, opinions relating to the validity of, and the
tax-exempt status of payments received by, the Portfolio from such derivative
securities are rendered by counsel to the respective sponsors of such
derivatives and relied upon by the Portfolio in purchasing such securities.
Neither the Portfolio nor its investment adviser will review the proceedings
relating to the creation of any tax-exempt derivative securities or the basis
for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO -ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The
Municipal Money Market Portfolio may not, however, change the following
investment limitations without such a vote of shareholders. (A more detailed
description of the following investment limitations,
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<PAGE>
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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This
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<PAGE>
limitation may be changed without a vote of shareholders of the Municipal Money
Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or instrumentalities only when the investment adviser believes
that the credit risk with respect thereto is minimal.
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<PAGE>
Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining
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maturity of any asset-backed security acquired will be 397 days or less.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data
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appeared to present a significantly different average remaining expected life
for a security when compared to data relating to the average remaining life of
comparable securities as provided by other independent mortgage-related
securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A more detailed discussion of short
sales is contained in the Statement of Additional Information.
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ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR MORE COMPLETE DESCRIPTION OF
ILLIQUID SECURITIES SEE "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO - ILLIQUID SECURITIES AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Government Obligations 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 the
Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved. The
investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing and
in amounts not in excess of 10% of the value of the Portfolio's assets
at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend
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portfolio securities against collateral, consisting of cash or
securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal
Obligations, see "Investment Objectives and Policies--Municipal Money Market
Portfolio - MUNICIPAL OBLIGATIONS."
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Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--^ Money Market
Portfolio--Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by Moody's or S&P; commercial paper rated in the highest grade by
Moody's or S&P; and certificates of deposit issued by United States branches of
United States banks with assets of $1 billion or more. At no time will more than
20% of the Portfolio's total
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<PAGE>
assets be invested in taxable short-term securities unless the Portfolio's
investment adviser has determined to temporarily adopt a defensive investment
policy in the face of an anticipated softening in the market for Municipal
Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities". For a more complete
description of eligible securities, see "Investment OBJECTIVES AND
POLICIES--MONEY MARKET PORTFOLIO--ELLIGIBLE SECURITIES" AND "INVESTMENT
Objectives and Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security. In
the opinion of the Portfolio's investment adviser, any risk to the Portfolio
should be limited by its intention to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended, and by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening economic
problems which could seriously affect their ability and that of
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<PAGE>
other issuers of New York Municipal Obligations to meet their financial
obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. In recent years, several different
issues of municipal securities of New York State and its agencies and
instrumentalities and of New York City have been downgraded by standard & Poor's
Corporation ("S&P") and Moody's Investor Service, Inc. ("Mood's"). On the other
hand, strong demand for New York Municipal Obligations has more recently had the
effect of permitting New York Municipal Obligations to be issued with yields
relatively lower, and after issuance to trade in the market at prices relatively
higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations. Although no issuers of New York Municipal
Obligations were as of the date of this Prospectus in default with respect to
the payment of their debt obligations, the occurrence of any such default could
adversely affect the shares. Some of the significant financial considerations
relating to the Fund's in vestments in New York Obligations are summarized in
the Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES AND "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money Market Portfolio's outstanding shares. 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 New York Municipal Money Market will be
achieved. The New York Municipal Money Market Portfolio may not, however, change
the following investment limitations without such a vote of
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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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that this
limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for
the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second
investment limitation above) shall not be deemed to be Municipal
Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
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1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax (and, with respect
to New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Gamma Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Gamma Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or bank wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Gamma
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 accompanied by Federal Funds and received by the
Fund after 12:00 noon Eastern Time but prior to 4:00 p.m.
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<PAGE>
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 an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Gamma 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 Gamma 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.
A broker may offer investors maintaining Accounts the ability
to purchase Gamma Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Gamma Class designated by the investor
as the "Primary Gamma Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase Program
should be read for details, and any inquiries concerning an Account under a
Purchase Program should be directed to the broker. A participant in a Purchase
Program may change the
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<PAGE>
designation of the Primary Gamma Class at any time by so instructing his broker.
If a broker makes special arrangements under which orders for
Gamma 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.
DIRECT PURCHASES. An investor may also make direct investments
at any time in any Gamma Class he selects through any broker that has entered
into a dealer agreement with the Distributor (a "Dealer"). An investor may make
an initial investment in any of the Gamma Classes by mail by fully completing
and signing an application obtained from a Dealer (the "Application"),
specifying the Portfolio in which he wishes to invest, and mailing it, together
with a check payable to "The Gamma Family" c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or 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 in any of the Gamma Classes by having his bank or
Dealer wire Federal Funds to the Fund's Custodian, PNC Bank, National
Association. An investor's bank or Dealer 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) 447-1139 (in Delaware call collect (302) 791-1149), and
provide it with your name, address, telephone number, Social Security
or Tax Identification Number, the Gamma 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 Dealer to wire the
specified amount, together with your assigned account number, to the
Custodian:
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PNC Bank, N.A, Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Gamma 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 Gamma Shares may redeem Gamma 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 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.
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<PAGE>
An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Gamma Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Gamma Family c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. 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, each signature must be guaranteed. A signature guarantee verifies the
authenticity of your signature and the guarantor must be a participant in a
STAMP program (a Securities Transfer Agents Medallion Program). You may call the
Transfer Agent at (800)583-7719 to determine whether the entity that will
guarantee the signature is an eligible guarantor. Guarantees must be signed by
an authorized signatory of the bank, trust company or member firm and "Signature
Guaranteed" must appear with the signature.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE TO
REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800)447-7719 (in Delaware call collect
(302)791-1153). The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if the Fund does not
employ, 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
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<PAGE>
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.
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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should complete
specimen signature cards, and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop
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<PAGE>
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 REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Gamma 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on
each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE IS closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr. Day, President's
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)), VETERANS DAY AND COLUMBAS 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 each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Gamma Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank serves as the sub-ADVISER for each of the
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-ADVISER. PNC Bank and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Philadelphia
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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 Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101, is a wholly owned subsidiary of PNC
Bancorp, Inc. PNC Bancorp, Inc. is a bank holding company and a wholly owned
subsidiary of PNC Bank Corp, is a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-ADVISER to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER, provides research and credit
analysis and provides PIMC with certain other services. In entering into
Portfolio transactions for a Portfolio with a broker, PIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees have no
effect on the advisory fees payable by such Portfolio to PIMC. In addition, PIMC
may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its advisory agreements with the Fund relating to any
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by each Portfolio to PIMC.
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<PAGE>
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, .05% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and 0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .21%, .112% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operation, including
matters relating to the maintenance of financial records and accounting. PFPC
will be entitled to an administration fee, computed daily and payable monthly at
a rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These expenses include, but
are not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest, legal fees,
custodian fees, auditing fees, brokerage fees and commissions, certain of the
fees and expenses of registering and qualifying the Portfolio and its shares for
distribution under Federal and state securities laws, expenses of preparing
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<PAGE>
prospectuses and statements of additional information and of printing and
distributing prospectuses and statements of additional information annually to
existing shareholders that are not attributable to a particular class, the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class, fidelity bond and
directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Portfolio's investment adviser under its advisory agreement with the
Portfolio. Any general expenses of the Fund that are not readily identifiable as
belonging to a particular investment portfolio of the Fund will be allocated
among all investment portfolios of the Fund based upon the relative net assets
of the investment portfolios at the time such expenses were accrued. In
addition, distribution expenses, transfer agency expenses, expenses of
preparing, printing and distributing prospectuses, statements of additional
information, proxy statements and reports to shareholders, and registration fees
identified as belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of each
of the Gamma Classes of the Fund pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Gamma Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the
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Distributor is entitled to receive from the relevant Gamma Class a distribution
fee, which is accrued daily and paid monthly, of up to .65% on an annualized
basis of the average daily net assets of the relevant Gamma Class. The actual
amount of such compensation is agreed upon from time to time by the Fund's Board
of Directors and the Distributor. Under the Distribution Contracts the
Distributor has agreed to accept compensation for its services thereunder and
under the Plans in the amount of .60% of the average daily net assets of the
relevant Gamma Class on an annualized basis in any year. Pursuant to the
conditions of an exemptive order granted by the Securities and Exchange
Commission, the Distributor has agreed to waive its fee with respect to a Gamma
Class on any day to the extent necessary to assure that the fee required to be
accrued by such Class does not exceed the income of such Class on that day. In
addition, the Distributor may, in its discretion, voluntarily waive from time to
time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Gamma Class
the fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor may incur in fulfilling its obligations under a Plan on behalf of
the relevant Gamma Class. Thus, under each of the Plans, even if the
Distributor's actual expenses exceed the fee payable to the Distributor
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If the Distributor's actual expenses are less than the fee it
receives, the Distributor will retain the full amount of the fee.
The Plans in effect with respect to the Gamma Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will remain
in effect only if approved at least annually by the Fund's Board of Directors,
including those directors who are not "interested
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persons" of the Fund as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related thereto ("12b-1 Directors"). Each of the Plans may be
terminated at any time by vote of a majority of the 12b-1 Directors or by vote
of a majority of the Fund's outstanding voting securities of the relevant Gamma
Class. The fee set forth above will be paid by the Fund on behalf of the
relevant Gamma Class to the Distributor unless and until the relevant Plan is
terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Gamma Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
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Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986, will generally constitute an item of tax preference for corporate and
noncorporate taxpayers in determining Federal alternative minimum tax liability.
The New York Municipal Money Market Portfolio may invest up to 20% of its net
assets in such private activity bonds and the Municipal Money Market Portfolio
may invest up to 100% of its net assets in such private activity bonds, although
the Municipal Money Market Portfolio does not presently intend to do so.
Secondly, tax-exempt interest and "exempt interest dividends" derived from all
Municipal Obligations must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustment for Federal alternative
minimum tax purposes. Investors should be aware of the possibility of state and
local alternative minimum or minimum income tax liability, in addition to
Federal alternative minimum tax. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments. Exempt interest dividends derived from interest on
New York Municipal Obligations will also be exempt from New York State and New
York City personal income (but not corporate franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually
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the percentages of its net investment income which are exempt from the regular
Federal income tax, which constitute an item of tax preference for purposes of
the Federal alternative minimum tax, and which are fully taxable and will apply
such percentages uniformly to all distributions declared from net investment
income during that year. These percentages may differ significantly from the
actual percentages for any particular day. In addition, the New York Municipal
Money Market Portfolio will determine annually the percentage amounts exempt
from New York State and New York City personal income taxes, and the amounts, if
any, subject to such taxes. The exclusion or exemption of interest income for
Federal income tax purposes, or New York State or New York City personal income
tax purposes, in most cases does not result in an exemption under the tax laws
of any other state or local authority. Investors who are subject to tax in other
states or localities should consult their own tax advisers about the taxation of
dividends and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and, therefore,
not only would not gain any additional benefit from the Portfolios' dividends
being tax-exempt but also such dividends would be taxable when distributed to
the beneficiary.
Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may
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differ from the Federal and state income tax consequences described above.
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 effect 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 GAMMA CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE GAMMA 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
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provides shareholders with the right to call for a meeting of shareholders to
consider the removal of one or more directors. To the extent required by law,
the Fund will assist in shareholder communication in such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of November 6, 1996, to the Fund's knowledge, no person
held of record or beneficially 25% or more of the outstanding shares of all of
the classes of the Fund.
The Fund will issue share certificates for any of the Gamma
Shares only upon the written request of a shareholder sent to PFPC.
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) 447-1139 (in Delaware call
collect (302) 791-1149).
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GAMMA FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Gamma
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio (formerly the Tax-Free Money Market Portfolio), the
Government Obligations Money Market Portfolio and the New York Municipal Money
Market Portfolio. This Statement of Additional Information is not a prospectus,
and should be read only in conjunction with the Gamma Family 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 2
Investment Objectives and Policies................. 2 6
Directors and Officers............................. 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements........................... 34 36
Portfolio Transactions............................. 40 N/A
Purchase and Redemption Information................ 41 29
Valuation of Shares................................ 42 35
Taxes.............................................. 44 41
Description of Shares.............................. 49 44
Additional Information Concerning Fund
Shares........................................... 51 -
Miscellaneous...................................... 52 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.
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GENERAL
The RBB Fund, Inc. (the "Fund") is an open-end management
investment company currently operating or proposing to operate nineteen
separate investment portfolios. This Statement of Additional Information
pertains to four classes of shares (the "Bedford Classes") representing
interests in four investment portfolios (the "Portfolios") of the Fund: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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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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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
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contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's expressed doubts
about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based upon revenues of
$29.508 billion, but budget gaps of $1.6 billion, $1.7 billion and $2.3 billion
in fiscal years 1994, 1995, and 1996, respectively. The 1993-1996 Financial Plan
proposes to eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
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upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
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On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
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Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
23
<PAGE>
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes
(and with respect to the Money Market Portfolio only, except for
reverse repurchase agreements) and then in amounts not in excess of 10%
of the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of
at least 300 percent for all borrowings of the Portfolio; or mortgage,
pledge, hypothecate any of its assets except in connection with such
borrowings and then, with respect to the Money Market Portfolio, in
amounts not in excess of 10% of the value of a Portfolio's total assets
at the time of such borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar
24
<PAGE>
amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and (except for the Municipal Money Market Portfolio)
may enter into repurchase agreements;
25
<PAGE>
(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
26
<PAGE>
of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
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.
27
<PAGE>
2. The Money Market Portfolio will limit its purchases of
Second Tier Securities, which are eligible securities other than First
Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of
Second Tier Securities of one issuer to the greater of 1% of its total
assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only if
after such borrowing there is asset coverage of at least 300 percent
for all borrowings of the Portfolio; or mortgage, pledge, hypothecate
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings in
excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral consisting of cash
or securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
28
<PAGE>
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at the time
of such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in connection
with such borrowings and then in amounts not in excess of 10% of the
value of a Portfolio's total assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is
not for investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient);
(2) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development
programs;
29
<PAGE>
(8) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
30
<PAGE>
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
31
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since 1985, Executive Vice President
14 Wall Street of Gruntal & Co., Inc., Director,
New York, NY 10005 Gruntal & Co., Inc. and Gruntal
Financial Corp.
Francis J. McKay - 60 Director Since 1963, Executive Vice President,
7701 Burholme Avenue Fox Chase Cancer Center (Biomedical
Philadelphia, PA 19111 research and medical care).
Marvin E. Sternberg - 62 Director Since 1974, Chairman, Director and
937 Mt. Pleasant Road President, Moyco Industries, Inc.
Bryn Mawr, PA 19010 (manufacturer of dental supplies and
precision coated abrasives); Since
1968, Director and President, Mart
MMM, Inc. (formerly Montgomeryville
Merchandise Mart, Inc.), Mart PMM,
Inc. (formerly Pennsauken Merchandise
Mart, Inc.) (shopping centers); and
Since 1975, Director and Executive
Vice President, Cellucap Mfg. Co.,
Inc. (manufacturer of disposable
headwear).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Julian A. Brodsky - 63 Director Director, and Vice Chairman, Comcast
1234 Market Street Corporation; Director, Comcast
16th Floor Cablevision of Philadelphia (cable
Philadelphia, PA 19107-3723 television and communications) and
Nextel (wireless communications).
Donald van Roden - 72 Director Self-employed businessman. From
1200 Old Mill Lane February 1980 to March 1987, Vice
Wyomissing, PA 19610 Chairman, SmithKline Beckman
Corporation (pharmaceuticals);
Director, AAA Mid-Atlantic
(auto service); Director,
Keystone Insurance Co.
Edward J. Roach - 72 President and Treasurer Certified Public Accountant; Vice
Suite 100 Chairman of the Board, Fox Chase
Bellevue Park Corporate Cancer Center; Vice President and
Center Trustee, Pennsylvania School for the
400 Bellevue Parkway Deaf; Trustee, Immaculata College;
Wilmington, DE 19809 Vice President and Treasurer of
various investment companies advised
by PNC Bank Institutional Management
Corporation.
Morgan R. Jones - 57 Secretary Partner, the law firm of Drinker
1100 PNB Bank Building Biddle & Reath, Philadelphia,
Broad and Chestnut Streets Pennsylvania (formerly, Chairman and
Philadelphia, PA 19107 Chief Executive Officer); Director,
Rocking Horse Child Care Centers of
America, Inc.
</TABLE>
- -------------------------
* 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.
33
<PAGE>
** Mr. Sablowsky is an "interested person" of the Fund as that term is
defined in the 1940 Act by virtue of his position with Gruntal & Co.,
Inc., a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as
that term is defined in the 1940 Act) of the Fund $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 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 sub-advisor to all Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, and the Fund's
custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal Money Market
and New York Municipal Money Market Portfolios and the Fund's transfer and
dividend disbursing agent, and Counsellors Securities Inc. (the "Distributor"),
the Fund's distributor, the Fund itself requires only one
34
<PAGE>
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 each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES WITH RESPECT TO THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017 OF ADVISORY FEES WITH RESPECT TO
THE NEW YORK MUNIICIPAL MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $2,274,697 in advisory fees with respect to
the Money Market Portfolio, $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio, $780,122 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $187,660 with respect to the New York Municipal
Money Market Portfolio. During the same year, PIMC waived $2,589,882 of advisory
fees with respect to the Money Market Portfolio, $1,041,321 of advisory fees
with respect to the Municipal Money Market Portfolio, $398,363 of advisory fees
with respect to the Government Obligations Money Market Portfolio. For the year
ended
35
<PAGE>
August 31, 1994, PIMC received (after waivers) $1,947,768 in advisory fees with
respect to the Money Market Portfolio, $7,733 in advisory fees with respect to
the Municipal Money Market Portfolio, $580,435 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $193,386 with respect to the New York Municipal
Money Market Portfolio under its Advisory Contract with the Fund. During the
same year, PIMC waived $2,255,986 of advisory fees with respect to the Money
Market Portfolio, $1,091,646 of advisory fees with respect to the Municipal
Money Market Portfolio, $461,938 of advisory fees with respect to the Government
Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional information and supplements thereto to existing shareholders, as
well as reports to shareholders and proxy material that are not attributable to
a
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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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by Shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or Provident. Each of
the Advisory Contracts may also be terminated by PIMC or Provident,
respectively, on 60 days' written notice to the Fund. Each of the Advisory
Contracts terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various
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reports with the appropriate regulatory agencies, and prepare materials required
by the SEC or any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of Provident, serves as the transfer and
dividend disbursing agent for the Fund's Gamma Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Gamma Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Gamma Class. PFPC may, on 30 days'
notice to the Fund, assign its duties as transfer and dividend disbursing agent
to any other affiliate of PNC Bank Corp. For its services to the Fund under the
Transfer Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per
account in each Portfolio for orders which are placed via third parties and
relayed electronically to PFPC,
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and at an annual rate of $17.00 per account in each 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
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Gamma Classes, (collectively, the "Distribution Contracts") and separate
Plans of Distribution for each of the Gamma Classes (collectively, the "Plans"),
all of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute
shares of each of the Gamma Classes. As compensation for its distribution
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Gamma Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios were approved for continuation 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 Plans or any agreements related to the Plans
("12b-1 Directors"). Each of the Plans relating to the Gamma Class of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was approved by the sole shareholder of each
Gamma Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2)
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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 Gamma 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 Gamma 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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
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discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
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cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE or the FRB, or both, are closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day (observed), Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day (observed).
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
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would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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.
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Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a widely-recognized independent
service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
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Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
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In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign
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corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
47
<PAGE>
While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each
48
<PAGE>
Portfolio intends to distribute all of its taxable income currently, no
Portfolio anticipates incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 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,
49
<PAGE>
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, 50 million shares are classified as Class X
Common Stock (U.S. Core Equity), 50 million shares are classified as Class Y
Common Stock (U.S. Core Fixed Income), 50 million shares are classified as Class
Z Common Stock (Global Fixed Income), 50 million shares are classified as Class
AA Common Stock (Municipal Bond), 50 million shares are classified as Class BB
Common Stock (BEA Balanced), 50 million shares are classified as Class CC Common
Stock (Short Duration), 100 million shares are classified as Class DD COMMON
STOCK, 100 million shares are classified as Class EE COMMON STOCK, 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 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
50
<PAGE>
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 Gamma 1,
Gamma 2, Gamma 3 and Gamma 4 Common Stock constitute the Gamma Family Classes.
Under the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen
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 Warburg Pincus Family represents
interests in the Growth & Income Fund, Balanced Fund and Tax Free Portfolios;
the Sansom Street Family represents interests in the Money Market, Municipal
Money Market and Government Obligations Money Market Portfolios; the Cash
Preservation represents interests in the Money Market and Municipal Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations 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 REPRESENTS INTERESTS IN ONE NON-MONEY ARKET PORTFOLIO; the Janney
Montgomery Scott Money Funds Family and Beta, 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.
51
<PAGE>
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
52
<PAGE>
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 the Statements of
Additional Information of the Fund relating to the RBB Family, the Cash
Preservation Classes, the Sansom Street Family, the Bedford Family and the
Bradford Family which have been audited by Coopers & Lybrand L.L.P. as set forth
in their reports, which also appear in the Statements of Additional Information
of the Fund relating to the RBB Family, the Cash Preservation Classes, the
Sansom Street Family, the Bedford Family and the Bradford Family, are
incorporated herein and made a part hereof in reliance upon the reports 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.
53
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. Haugh Caring TR DTD 8/12/91 15.3
40 Plaza Square
Apt. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Wasner & Co. 16.6
Portfolio (Class I) FAO Paine Webber and Managed 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
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BRADFORD MUNICIPAL MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA Emerging Markets Equity Wachovia Bank North Carolina Trust for Carolina 15.7
Portfolio (Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA US Core Fixed Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
(Class
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
As of such date, no person owned of record or, to the Fund's
knowledge, beneficially, more than 25% of the outstanding shares of all classes
of the Fund.
As of the above date, directors and officers as a group owned
less than one percent of the shares of the Fund.
Litigation. There is currently no material litigation
affecting the Fund.
<PAGE>
APPENDIX
DESCRIPTION OF BOND RATINGS
The following summarizes the highest two ratings used by
Standard & Poor's Corporation for bonds:
AAA-Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA issues only
in small degree. The "AA" rating may be modified by the
addition of a plus or minus sign to show relative standing
within the AA rating category.
The following summarizes the highest two ratings used by
Moody's Investors Service, Inc. for bonds:
Aaa-Bonds that are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated AA.
The modifier 1 indicates that the bond being rated ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the bond ranks in the lower end of its generic
rating category.
The rating SP-1 is the highest rating assigned by Standard &
Poor's to municipal notes and indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
The following summarizes the two highest ratings used by
Moody's for short-term notes and variable rate demand obligations:
MIG-1/VMIG-1. Obligations bearing these designations are of
the best quality, enjoying strong protection by established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2. Obligations bearing these designations are of
high quality with margins of protection ample although not as large as in the
preceding group.
A-1
<PAGE>
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
<PAGE>
PROSPECTUS
THE ETA FAMILY
MONEY MARKET PORTFOLIO
- -----------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- -----------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- -----------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
December 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION ............................................................ 2
FINANCIAL HIGHLIGHTS .................................................... 6
INVESTMENT OBJECTIVES AND POLICIES ...................................... 6
PURCHASE AND REDEMPTION OF SHARES ....................................... 29
NET ASSET VALUE ......................................................... 36
MANAGEMENT .............................................................. 36
DISTRIBUTION OF SHARES .................................................. 40
DIVIDENDS AND DISTRIBUTIONS ............................................. 41
TAXES ................................................................... 41
DESCRIPTION OF SHARES ................................................... 44
OTHER INFORMATION ....................................................... 49
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE ETA FAMILY
OF
THE RBB FUND, INC.
The Eta Family consists of four classes of common stock of The
RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Eta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
Shares of the Fund are not deposits or obligations of, or
guaranteed or endorsed by, PNC Bank, National Association ("PNC BANK") or any
other bank and Shares are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency. Investments in
Shares of the Fund involve investment risks, including the possible loss of
principal. There can be no assurance that the Portfolios will be able to
maintain a stable net asset value of $1.00 per share.
PNC Institutional Management Corporation serves as investment
adviser for the Fund, PNC serves as sub-ADVISER for all Portfolios other
than the New York Municipal Money Market Portfolio, which has no sub-advisor,
and serves as custodian for the Fund, PFPC Inc. ("PFPC") serves as administrator
to the Municipal Money Market and New York Municipal Money Market Portfolios and
transfer and dividend disbursing agent for the Fund. Counsellors Securities Inc.
acts as distributor for the Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Eta Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or
2
<PAGE>
its agencies or instrumentalities, and enters into repurchase agreements
relating to such obligations.
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios 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-advisor to all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-advisor, and serves as custodian to the Fund, and
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and 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 any of the Eta
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Eta Classes is subject to certain
risks, as set forth in detail under "Investment Objectives and Policies." Any or
all of the Portfolios, 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 Eta
Shares, please refer to the section of this Prospectus entitled "Purchase and
Redemption of Shares."
3
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (ETA CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS(2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after
waivers)(1).......... .20% .05% .30% 0%
12b-1 fees (after
waivers)(1).......... .55 .55 .57 .51
Other Expenses (after
reimbursements)...... .22 .24 .105 .27
--- --- ---- ---
Total Fund Operating
Expenses (Eta
Classes) (after
waivers and
reimbursements)..... .97% .84% .975% .78%
==== ==== ===== ====
<FN>
(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 GOVERNMENT SECURITIES
PORTFOLIO, MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO,
MANAGEMENT FEES WOULD BE .37%, .33%, .42% AND .35%, RESPECTIVELY; 12B-1 FEES
WOULD BE .55%, .55%, .57% .51%, RESPECTIVELY; OTHER EXPENSES WOULD BE .22%,
.24%, .11%, AND .28% RESPECTIVELY; AND TOTAL FUND OPERATING EXPENSES WOULD BE
1.14%, 1.12%, 1.10% AND 1.14%, RESPECTIVELY.
</FN>
</TABLE>
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:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
Money Market*........... $10 $31 N/A N/A
Municipal Money
Market*................ $ 9 $27 N/A N/A
Government Obligations
Money Market*.......... $10 $31 N/A N/A
New York Municipal
Money Market........... $ 8 $25 N/A N/A
* Other classes of these Portfolios 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 (ETA CLASSES) 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.
4
<PAGE>
The Fee Table is designed to assist an investor in
understanding the various costs and expenses that an investor in the Eta Classes
of the Fund will bear directly or indirectly. (For more complete descriptions of
the various costs and expenses, see "Management--Investment Adviser and
Sub-Advisor" and "Distribution of Shares" below.) The expense figures are based
on estimated costs and estimated fees expected to be charged to the Eta Classes,
taking into account anticipated fee waivers and reimbursements. The Fee Table
reflects a voluntary waiver of Management fees for each Portfolio. However,
there can be no assurance that any future waivers of Management fees will not
vary from the figure reflected in the Fee Table. To the extent that any service
providers assume additional expenses of the Portfolios, such assumption will
have the effect of lowering a Portfolio's overall expense ratio and increasing
its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of Federal,
New York State and New York City personal income taxes at stated rates.
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Eta Classes 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 the Eta Classes are not
reflected in the yields of the Eta Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
yield on Shares of the Eta Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA IS SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS
OF THE DATE OF THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
INVESTMENT OBJECTIVES AND POLICIES
MONEY MARKET PORTFOLIO
5
<PAGE>
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
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is a U.S. dollar-denominated commercial paper issued by a
Canadian corporation or a Canadian counterpart of a U.S. corporation, and in
Europaper, which is U.S. Dollar-denominated commercial paper of a foreign
issuer, subject to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending
6
<PAGE>
upon the note involved) to demand payment of the principal of a note. The notes
are not typically rated by credit rating agencies, but issuers of variable rate
demand notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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 purpose. See "Investment
Limitations."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
7
<PAGE>
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option specified Municipal Obligations at a specified price. The acquisition of
a stand-by commitment may increase the cost, and thereby reduce the yield, of
the Municipal Obligation to which such commitment relates. The Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio
securities on a "when-issued" basis. When issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield. The Portfolio will generally not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
basis are recorded as an asset at the time the commitment is entered into and
are subject to changes in value prior to delivery based upon changes in the
general level of interest rates. The Portfolio expects that commitments to
purchase when-issued securities will not exceed 25% of the value of its total
assets absent unusual market conditions. The Portfolio does not intend to
purchase when-issued securities for speculative purposes but only in furtherance
of its investment objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase
"eligible securities" that present minimal credit risks as determined by the
Portfolio's investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest Rating Categories by one or more nationally recognized statistical
rating organizations ("NRSROs") (e.g., commercial paper rated "A-1" or "A-2" by
S&P), (3) securities that are rated at the time of purchase by the only NRSRO
rating
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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.)
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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 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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During
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periods of normal market conditions, at least 80% of the net assets of the
Municipal Money Market Portfolio will be invested in Municipal Obligations.
Municipal Obligations include securities the interest on which is Tax-Exempt
Interest, although to the extent the Portfolio invests in certain private
activity bonds issued after August 7, 1986 ("Alternative Minimum Tax
Securities"), a portion of the interest earned by the Portfolio may constitute
an item of tax preference for purposes of the Federal alternative minimum tax
("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable obligations bearing Tax-Exempt Interest
or AMT Interest are unavailable. There is no percentage limitation on the amount
of assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons,
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suffer a loss to the extent of the default. The Portfolio invests in variable
rate demand notes only when the Portfolio's investment adviser deems the
investment to involve minimal credit risk. The Portfolio's investment adviser
also monitors the continuing creditworthiness of issuers of such notes to
determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal securities held
by a custodian and such receipts include the option to tender the underlying
securities to the sponsor (usually a bank, broker-dealer or other financial
institution). Although the Internal Revenue Service has not ruled on whether the
interest received on derivative securities in the form of participation
interests or custodial receipts is Tax-Exempt Interest, opinions relating to the
validity of, and the tax-exempt status of payments received by, the Portfolio
from such derivative securities are rendered by counsel to the respective
sponsors of such derivatives and relied upon by the Portfolio in purchasing such
securities. Neither the Portfolio nor its investment adviser will review the
proceedings relating to the creation of any tax-exempt derivative securities or
the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
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STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities".
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES -- MONEY MARKET
PORTFOLIO-ILLIQUID SECURITIES" AND "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The
Municipal Money Market Portfolio may not, however, change the following
investment limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of the
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Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or instrumentalities only when the investment adviser believes
that the credit risk with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a
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shareholder owns Shares representing an interest in the Portfolio. Certain
government securities held by the Portfolio may have remaining maturities
exceeding 397 calendar days if such securities provide for adjustments in their
interest rates not less frequently than every 397 calendar days and the
adjustments are sufficient to cause the securities to have market values, after
adjustment, which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. For this and other reasons, an asset-backed security's stated
maturity may be shortened, and the security's total return may be difficult to
predict precisely. Such difficulties are not expected, however, to have a
significant effect on the Portfolio since the remaining maturity of any
asset-backed security acquired will be 397 days or less.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or
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thirty years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities. A
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more detailed discussion of short sales is contained in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR MORE COMPLETE DESCRIPTION OF
ILLIQUID SECURITIES SEE "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO - ILLIQUID SECURITIES AND "Investment Objectives and Policies--
Illiquid Securities" in the Statement of Additional Information.
The Government Obligations 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 the
Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved. The
investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing and
in amounts not in excess of 10% of the value of the Portfolio's assets
at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts received
during the loan on account of interest on the securities loaned, may
not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such amounts are
qualifying income under Federal income tax provisions applicable to
regulated investment companies.
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NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal Obligations,
see "Investment Objectives and Policies--Municipal Money Market Portfolio -
MUNICIPAL OBLIGATIONS."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such
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as described under "Investment Objectives and Policies--Money Market Portfolio--
Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt securities rated within the two highest ratings
assigned by Moody's or S&P; commercial paper rated in the highest grade by
Moody's or S&P; and certificates of deposit issued by United States branches of
United States banks with assets of $1 billion or more. At no time will more than
20% of the Portfolio's total assets be invested in taxable short-term securities
unless the Portfolio's investment adviser has determined to temporarily adopt a
defensive investment policy in the face of an anticipated softening in the
market for Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities". For a more complete
description of eligible securities, see "Investment OBJECTIVES AND POLICIES
- -MONEY MARKET PORTFOLIO ELIGIBLE SECURITIES" AND "INVESTMENT Objectives and
Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security. In
the opinion of the Portfolio's investment adviser, any risk to the Portfolio
should be limited by its intention to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended, and by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening economic
problems which could seriously affect their ability and that of other issuers of
New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
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recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. In recent years, several different
issues of municipal securities of New York State and its agencies and
instrumentalities and of New York City have been downgraded by Standard & Poor's
Corporation ("S&P") and Moody's Investor Service, Inc. ("Moody's"). On the other
hand, strong demand for New York Municipal Obligations has more recently had the
effect of permitting New York Municipal Obligations to be issued with yields
relatively lower, and after issuance to trade in the market at prices relatively
higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations. Although no issuers of New York Municipal
Obligations were as of the date of this Prospectus in default with respect to
the payment of their debt obligations, the occurrence of any such default could
adversely affect the shares. Some of the significant financial considerations
relating to the Fund's investments in New York Obligations are summarized in the
Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE "INVESTMENT OBJECTIVES AND POLICIES - MONEY MARKET
PORTFOLIO - ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money Market Portfolio's outstanding shares. 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 New York Municipal Money Market will be
achieved. The New York Municipal Money Market Portfolio may not, however, change
the following investment limitations 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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to
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be invested in the securities of issuers conducting their principal
business activities in the same industry; provided that this limitation
shall not apply to Municipal Obligations or governmental guarantees of
Municipal Obligations; and provided, further, that for the purpose of
this limitation only, private activity bonds that are considered to be
issued by non-governmental users (see the second investment limitation
above) shall not be deemed to be Municipal Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax (and, with respect
to New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Eta Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Eta Shares through an account
maintained by the investor with his brokerage firm (the "Account") and may also
purchase Shares directly by mail or bank wire. The minimum initial investment is
$1,000, and the minimum subsequent investment is $100. The Fund in its sole
discretion may accept or reject any order for purchases of Eta 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
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12:00 noon Eastern Time, and orders as to which payment has been converted into
Federal Funds by 12:00 noon Eastern Time, will be executed as of 12:00 noon that
Business Day. Orders which are accompanied by Federal Funds and received by the
Fund after 12:00 noon Eastern Time but prior to 4:00 p.m. Eastern Time, and
orders as to which payment has been converted into Federal Funds after 12:00
noon Eastern Time but prior to 4:00 p.m. Eastern Time on any Business Day of the
Fund, will be executed as of 4:00 p.m. Eastern Time on that Business Day, but
will not be entitled to receive dividends declared on such Business Day. Orders
which are accompanied by Federal Funds and received by the Fund as of 4:00 p.m.
Eastern Time or later, and orders as to which payment has been converted to
Federal Funds as of 4:00 p.m. Eastern Time or later on a Business Day will be
processed as of 12:00 noon Eastern Time on the following Business Day. A
"Business Day" is any day that both the New York Stock Exchange (the "NYSE") and
the Federal Reserve Bank of Philadelphia (the "FRB") are open.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be
effected through an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Eta 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 Eta 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.
A broker may offer investors maintaining Accounts the ability
to purchase Eta Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Eta Class designated by the investor as
the "Primary Eta Class" for his Purchase Program. The frequency of investments
and the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the designation of the Primary Eta Class at any time by so
instructing his broker.
If a broker makes special arrangements under which orders for
Eta 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.
DIRECT PURCHASES. An investor may also make direct investments
at any time in any Eta Class he selects through any broker that has entered into
a dealer agreement with the Distributor (a "Dealer"). An investor may make an
initial investment in any of the Eta Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
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<PAGE>
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Eta Family" c/o PFPC, P.O. Box 8950, Wilmington, Delaware
19899. The check must specify the name of the Portfolio for which shares are
being purchased. An Application will be returned to the investor unless it
contains the name of the Dealer from whom it was obtained. Subsequent purchases
may be made through a Dealer or 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 in any of the Eta Classes by having his bank or Dealer
wire Federal Funds to the Fund's Custodian, PNC Bank, National Association. An
investor's bank or Dealer 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) 447-1139 (in Delaware call collect (302) 791-1149), and
provide it with your name, address, telephone number, Social Security
or Tax Identification Number, the Eta 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 Dealer to wire the specified
amount, together with your assigned account number, to the Custodian:
PNC Bank, National Association, Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Eta 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 Eta Shares may redeem Eta 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 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
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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.
An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Eta Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Alpha Family c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. 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, each signature must be guaranteed. A signature guarantee verifies the
authenticity of your signature and the guarantor must be a participant in a
STAMP Program (a Securities Transfer Agents Medallion Program). You may call the
Transfer Agent at (800) 583-7719 to determine whether the entity that will
guarantee the signature is on eligible guarantor. Guarantees must be signed by
an authorized signatory of the bank, trust company or member firm and "Signature
Guaranteed" must appear with the signature.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE TO
REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800)447-7719 (in Delaware call collect
(302)791-1153). 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 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.
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.
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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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should complete
specimen signature cards, and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
Investors of joint accounts may elect to have checks honored with a single
signature. Check redemptions will be subject to PNC Bank's rules governing
checks. An investor will be able to stop payment on a check redemption. The Fund
or PNC Bank may terminate this redemption service at any time, and neither shall
incur any liability for honoring checks, for effecting redemptions to pay
checks, or for returning checks which have not been accepted.
When a check is presented to PNC Bank for clearance, PNC Bank,
as the investor's agent, will cause the Fund to redeem a sufficient number of
full and fractional Shares owned by the investor to cover the amount of the
check. This procedure enables the investor to continue to receive dividends on
those Shares equalling the amount being redeemed by check until such time as the
check is presented to PNC Bank. Checks may not be presented for cash payment at
the offices of PNC Bank because, under 1940 Act rules, redemptions may be
effected only at the redemption price next determined after the redemption
request is presented to PFPC. This limitation does not affect checks used for
the payment of bills or cash at other banks.
ADDITIONAL REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
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The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Eta 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on
each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE IS closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr. Day, President's
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), 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 each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Eta Classes represents interests in one of the following
such investment portfolios: the Money Market Portfolio, the Municipal Money
Market Portfolio, the Government Obligations Money Market Portfolio and the New
York Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank serves as the sub-ADVISER for each of the
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-ADVISER. PNC Bank and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the
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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 Broad and
Chestnut Streets, Philadelphia, Pennsylvania 19101, is a wholly owned subsidiary
of PNC Bancorp, Inc. PNC Bancorp, Inc., with a principal address c/o
Organization Services, Inc. is a bank holding company and a wholly owned
subsidiary of PNC Bank Corp.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-ADVISER to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER, provides research and credit
analysis and provides PIMC with certain other services. In entering into
Portfolio transactions for a Portfolio with a broker, PIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees have no
effect on the advisory fees payable by such Portfolio to PIMC. In addition, PIMC
may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its advisory agreements with the Fund relating to any
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, 02% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and 0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .21%, .12% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operation, including
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matters relating to the maintenance of financial records and accounting. PFPC
will be entitled to an administration fee, computed daily and payable monthly at
a rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These expenses include, but
are not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest, legal fees,
custodian fees, auditing fees, brokerage fees and commissions, certain of the
fees and expenses of registering and qualifying the Portfolio and its shares for
distribution under Federal and state securities laws, expenses of preparing
prospectuses and statements of additional information and of printing and
distributing prospectuses and statements of additional information annually to
existing shareholders that are not attributable to a particular class, the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class, fidelity bond and
directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Portfolio's investment adviser under its advisory agreement with the
Portfolio. Any general expenses of the Fund that are not readily identifiable as
belonging to a particular investment portfolio of the Fund will be allocated
among all investment portfolios of the Fund based upon the relative net assets
of the investment portfolios at the time such expenses were accrued. In
addition, distribution expenses, transfer agency expenses, expenses of
preparing, printing and distributing prospectuses, statements of additional
information, proxy statements and reports to shareholders, and registration fees
identified as belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
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DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of each
of the Eta Classes of the Fund pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Eta Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Eta Class a distribution fee, which is accrued daily and paid monthly,
of up to .65% on an annualized basis of the average daily net assets of the
relevant Eta Class. The actual amount of such compensation is agreed upon from
time to time by the Fund's Board of Directors and the Distributor. Under the
Distribution Contracts the Distributor has agreed to accept compensation for its
services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Eta Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Eta Class the
fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor may incur in fulfilling its obligations under a Plan on behalf of
the relevant Eta Class. Thus, under each of the Plans, even if the Distributor's
actual expenses exceed the fee payable to the Distributor thereunder at any
given time, the Fund will not be obligated to pay more than that fee. If the
Distributor's actual expenses are less than the fee it receives, the Distributor
will retain the full amount of the fee.
The Plans in effect with respect to the Eta Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will remain
in effect only if approved at least annually by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto
("12b-1 Directors"). Each of the Plans may be terminated at any time by vote of
a majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Eta Class. The
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<PAGE>
fee set forth above will be paid by the Fund on behalf of the relevant Eta Class
to the Distributor unless and until the relevant Plan is terminated or not
renewed.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Eta Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived
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<PAGE>
from certain private activity bonds issued after August 7, 1986, will generally
constitute an item of tax preference for corporate and noncorporate taxpayers in
determining Federal alternative minimum tax liability. The New York Municipal
Money Market Portfolio may invest up to 20% of its net assets in such private
activity bonds and the Municipal Money Market Portfolio may invest up to 100% of
its net assets in such private activity bonds, although the Municipal Money
Market Portfolio does not presently intend to do so. Secondly, tax-exempt
interest and "exempt interest dividends" derived from all Municipal Obligations
must be taken into account by corporate taxpayers in determining their adjusted
current earnings adjustment for Federal alternative minimum tax purposes.
Investors should be aware of the possibility of state and local alternative
minimum or minimum income tax liability, in addition to Federal alternative
minimum tax. Shareholders who are recipients of Social Security Act or Railroad
Retirement Act benefits should further note that tax-exempt interest and "exempt
interest dividends" derived from all types of Municipal Obligations will be
taken into account in determining the taxability of their benefit payments.
Exempt interest dividends derived from interest on New York Municipal
Obligations will also be exempt from New York State and New York City personal
income (but not corporate franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually the percentages of its
net investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day. In addition, the New York Municipal Money
Market Portfolio will determine annually the percentage amounts exempt from New
York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. The exclusion or exemption of interest income for Federal
income tax purposes, or New York State or New York City personal income tax
purposes, in most cases does not result in an exemption under the tax laws of
any other state or local authority. Investors who are subject to tax in other
states or localities should consult their own tax advisers about the taxation of
dividends and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and, therefore,
not only would not gain any additional benefit from the Portfolios' dividends
being tax-exempt but also such dividends would be taxable when distributed to
the beneficiary.
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Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income tax
consequences described above.
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 60 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 ETA CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE ETA CLASSES.
Each share that represents an interest in a Portfolio has an
equal proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a share
has a different class designation than another share representing an interest in
that Portfolio. Shares of the Fund do not have preemptive or conversion rights.
When issued for payment as described in this Prospectus, Shares of the Fund will
be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are
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<PAGE>
entitled to one vote for each full share held (irrespective of class or
portfolio) and fractional votes for fractional shares held. Voting rights are
not cumulative and, accordingly, the holders of more than 50% of the aggregate
shares of Common Stock of the Fund may elect all of the directors.
As of 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.
The Fund will issue share certificates for any of the Eta
Shares only upon the written request of a shareholder sent to PFPC.
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) 447-1139 (in Delaware call
collect (302) 791-1149).
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<PAGE>
ETA FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Eta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Eta Family 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 2
Investment Objectives and Policies ....... 2 6
Directors and Officers ................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 35 36
Portfolio Transactions ................... 40 N/A
Purchase and Redemption Information ...... 41 29
Valuation of Shares ...................... 42 35
Taxes .................................... 44 41
Description of Shares ..................... 49 44
Additional Information Concerning Fund
Shares.................................. 51 --
Miscellaneous ............................ 52 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 four classes of shares (the "Bedford Classes") representing
interests in four investment portfolios (the "Portfolios") of the Fund: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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<PAGE>
its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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<PAGE>
Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
4
<PAGE>
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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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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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
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contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's expressed doubts
about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based upon revenues of
$29.508 billion, but budget gaps of $1.6 billion, $1.7 billion and $2.3 billion
in fiscal years 1994, 1995, and 1996, respectively. The 1993-1996 Financial Plan
proposes to eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
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upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
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On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
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Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
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borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio only, except
for reverse repurchase agreements) and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with
respect to the Municipal Money Market Portfolio, in amounts not in
excess of the lesser of the dollar
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amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
(7) purchase or sell commodities or commodity
contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that a Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
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(10) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(11) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
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of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the Municipal
Money Market Portfolio has more than 5% of its total assets invested
in instruments issued by or subject to Puts from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Municipal Money Market Portfolio's total assets.
A "Put" means a right to sell a specified underlying instrument within
a specified period of time and at a specified exercise price that may
be sold, transferred or assigned only with the underlying instrument.
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.
27
<PAGE>
2. The Money Market Portfolio will limit its
purchases of Second Tier Securities, which are eligible securities
other than First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its
purchases of Second Tier Securities of one issuer to the greater of 1%
of its total assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations. There is no limit on the
amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is
permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10%
of the Portfolio's annual gross income (without offset for realized
capital gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies.
28
<PAGE>
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300 percent for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in
excess of 10% of the value of a Portfolio's total assets at the time
of such borrowing; or purchase portfolio securities while borrowings
in excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
(2) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except
to the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with the Portfolio's investment objective, policies and limitations
may be deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
29
<PAGE>
(8) make loans except that the Portfolio may
purchase or hold debt obligations in accordance with its investment
objective, policies and limitations and may enter into repurchase
agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio
will not purchase any Put if after the acquisition of the Put the New
York Municipal Money Market Portfolio has more than 5% of its total
assets invested in instruments issued by or subject to Puts from the
same institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
30
<PAGE>
specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
30
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman, 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.;
Since 1990, Chief
Executive Officer
and since 1991,
Secretary, Counsellors
Securities Inc.;
Officer of various
investment companies
advised by Warburg,
Pincus Counsellors, Inc.
Robert Sablowsky, 58** Director Since 1985, Executive
14 Wall Street Vice President of
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc. and Gruntal
Financial Corp.
Francis J. McKay, 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.), Mart PMM, Inc. (formerly
Pennsauken Merchandise Mart, Inc.)
(shopping centers); and Since
1975, Director and Executive
Vice President,
Cellucap Mfg. Co., Inc.
(manufacturer of disposable
headwear).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Julian A. Brodsky, 63 Director Director, and Vice
1234 Market Street Chairman, Comcast
16th Floor Corporation; Director,
Philadelphia, PA 19107-3723 Comcast Cablevision of
Philadelphia (cable
television and
communications) and Nextel
(Wireless communications).
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 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
103 Bellevue Parkway Center; Vice President
Wilmington, DE 19809 and Trustee, Pennsylvania School
for the Deaf; Trustee,
Immaculata College; Vice
President and Treasurer
of various investment
companies advised by
PNC Bank Institutional
Management Corporation.
Morgan R. Jones, 57 Secretary Partner, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Chairman and Chief
Executive Officer);
Director, Rocking Horse Child Care
Centers of America, Inc.
</TABLE>
33
<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 Gruntal & Co.,
Inc., a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as
that term is defined in the 1940 Act) of the Fund $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 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,
34
<PAGE>
National Association ("PNC Bank"), the sub-advisor to all Portfolios other than
the New York Municipal Money Market Portfolio, which has no sub-advisor, and the
Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal Money
Market and New York Municipal Money Market Portfolios and the Fund's transfer
and dividend disbursing agent, and Counsellors Securities Inc. (the
"Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES WITH RESPECT TO THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017 OF ADVISORY FEES WITH RESPECT TO
THE NEW YORK MUNIICIPAL MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $2,274,697 in advisory fees with respect to
the Money Market Portfolio, $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio, $780,122 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $187,660 with respect to the New York Municipal
Money Market Portfolio. During the same year, PIMC waived $2,589,882 of advisory
fees with respect to the Money Market Portfolio, $1,041,321 of advisory fees
with respect to the Municipal Money Market Portfolio, $398,363 of advisory fees
with respect to
35
<PAGE>
the Government Obligations 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, $7,733 in advisory fees with respect to the
Municipal Money Market Portfolio, $580,435 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $193,386 with respect to the New York Municipal
Money Market Portfolio under its Advisory Contract with the Fund. During the
same year, PIMC waived $2,255,986 of advisory fees with respect to the Money
Market Portfolio, $1,091,646 of advisory fees with respect to the Municipal
Money Market Portfolio, $461,938 of advisory fees with respect to the Government
Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional information and supplements thereto to existing shareholders, as
well as
36
<PAGE>
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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by Shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services
37
<PAGE>
required by the Fund. PFPC has also agreed to prepare and file various reports
with the appropriate regulatory agencies, and prepare materials required by the
SEC or any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Eta Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Eta Classes, (b) addresses and mails all communications by
each Portfolio to record owners of shares of each such Class, including reports
to shareholders, dividend and distribution notices and proxy materials for its
meetings of shareholders, (c) maintains shareholder accounts and, if requested,
sub-accounts and (d) makes periodic reports to the Fund's Board of Directors
concerning the operations of each Eta Class. PFPC may, on 30 days' notice to the
Fund, assign its duties as transfer and dividend disbursing agent to any other
affiliate of PNC Bank Corp. For its services to the Fund under the Transfer
Agency Agreement, PFPC receives a fee at the annual rate of $15.00 per account
in each Portfolio for orders which are placed via third
38
<PAGE>
parties and relayed electronically to PFPC, and at an annual rate of $17.00 per
account in each 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
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Eta Classes, (collectively, the "Distribution Contracts") and separate
Plans of Distribution for each of the Eta Classes (collectively, the "Plans"),
all of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute
shares of each of the Eta Classes. As compensation for its distribution
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Eta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Eta Class of
the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios was approved by the sole
shareholder of each Eta Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising,
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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 Eta 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 Eta 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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
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purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
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shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE or the FRB, or both, are closed on New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day (observed), Labor Day, Columbus Day, Veterans Day,
Thanksgiving Day and Christmas Day (observed).
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
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The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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.
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Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT 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 Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
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Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
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In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign
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corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
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While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each
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Portfolio intends to distribute all of its taxable income currently, no
Portfolio anticipates incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 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),
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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, 50
million shares are classified as Class X Common Stock (U.S. Core Equity), 50
million shares are classified as Class Y Common Stock (U.S. Core Fixed Income),
50 million shares are classified as Class Z Common Stock (Global Fixed Income),
50 million shares are classified as Class AA Common Stock (Municipal Bond), 50
million shares are classified as Class BB Common Stock (BEA Balanced), 50
million shares are classified as Class CC Common Stock (Short Duration), 100
million shares are classified as Class DD COMMON STOCK, 100 million shares are
classified as Class EE COMMON STOCK, 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 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
50
<PAGE>
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 Classes Eta 1,
Eta 2, Eta 3 and Eta 4, Common Stock constitute the Eta Family Classes. Under
the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into fifteen
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 Warburg Pincus Family represents
interests in the Growth & Income Fund, Balanced Fund and Tax Free Portfolios;
the Sansom Street Family represents interests in the Money Market, Municipal
Money Market and Government Obligations Money Market Portfolios; the Cash
Preservation Family represents interests in the Money Market and Municipal Money
Market Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations 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
BOSTOON PARTNERS FAMILY REPRESENTS INTEREST IN ONE NON-MONEY MARKET PORTFOLIO;
the Janney Montgomery Scott Money Funds Family and Beta, Gamma, Delta, Epsilon,
Zeta, and Theta Families represents interest in the Money Market, Municipal
Money Market, Governmental Obligations Money Market and New York Municipal Money
Market Portfolios.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or
51
<PAGE>
more directors. To the extent required by law, the Fund will assist in
shareholder communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 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 the
Statements of Additional Information of the Fund relating to the RBB Family, the
Cash Preservation Classes, the Sansom Street Family, the Bedford Family
52
<PAGE>
and the Bradford Family which have been audited by Coopers & Lybrand L.L.P. as
set forth in their reports, which also appear in the Statements of Additional
Information of the Fund relating to the RBB Family, the Cash Preservation
Classes, the Sansom Street Family, the Bedford Family and the Bradford Family,
are incorporated herein and made a part hereof in reliance upon the reports 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.
53
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. Haugh Caring TR DTD 8/12/91 15.3
40 Plaza Square
Apt. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Wasner & Co. 16.6
Portfolio (Class I) FAO Paine Webber and Managed 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
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
ROBERTSON Stephens & Co. 8.6
FBO Exclusive Benefit Investors
C/O ERIC MOORE
555 California STREET/NO. 2600
San Francisco, CA 94101
BRADFORD MUNICIPAL MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
SC JOHNSON & SON, INC. RETIREMENT PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Wachovia Bank North Carolina Trust for Carolina 15.7
Portfolio (Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
One Wall Street
New York, NY 10286
WERNER & Pfleiderer Pension 7.5
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Income New England UFCW & Employers' Pension Fund 24.5
Portfolio (Class Y) Board of Trustees
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
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 (Class Z) 14130 Riverside Drive
Sherman Oaks, CA 91423
PATTERSON & CO. 25.7
P. O. BOX 7829
PHILADELPHIA, PA 19101
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
60
<PAGE>
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.
61
<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.
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
A-1
<PAGE>
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
<PAGE>
PROSPECTUS
THE EPSILON FAMILY
MONEY MARKET PORTFOLIO
- -----------------------------
MONEY MARKET PORTFOLIO
- -----------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- -----------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
December 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION ....................................................... 2
FINANCIAL HIGHLIGHTS ............................................... 6
INVESTMENT OBJECTIVES AND POLICIES ................................. 6
PURCHASE AND REDEMPTION OF SHARES .................................. 29
NET ASSET VALUE .................................................... 36
MANAGEMENT ......................................................... 36
DISTRIBUTION OF SHARES ............................................. 40
DIVIDENDS AND DISTRIBUTIONS ........................................ 41
TAXES .............................................................. 41
DESCRIPTION OF SHARES .............................................. 44
OTHER INFORMATION .................................................. 46
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE EPSILON FAMILY
OF
THE RBB FUND, INC.
The Epsilon Family consists of four classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Epsilon Shares" or "Shares") offered
by this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT OR ANY GOVERNMENTAL AGENCY. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
PNC Institutional Management Corporation serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC BANK") serves as
sub-ADVISER for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-ADVISER, and serves as custodian for the Fund,
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor for the
Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Epsilon Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or
2
<PAGE>
its agencies or instrumentalities, and enters into repurchase agreements
relating to such obligations.
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios 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 ("Provident") serves as
sub-advisor to all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-advisor, and serves as custodian to the Fund, and
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and 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 any of the Epsilon Classes
through his broker or by direct purchases or redemptions. See "Purchase and
Redemption of Shares."
An investment in any of the Epsilon Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." Any or all of the Portfolios, 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
Epsilon Shares, please refer to the section of this Prospectus entitled
"Purchase and Redemption of Shares."
3
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (EPSILON CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS (2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after
waivers) (1)............... .20% .05% .30% 0%
12b-1 fees (after
waivers) (1)............... .55 .55 .57 .52
Other Expenses (after
reimbursements)............ .22 .24 .105 .27
--- --- ---- ---
Total Fund Operating
Expenses (Epsilon
Classes) (after waivers
and reimbursements)........ .97% .84% .975% .78%
==== ==== ===== ====
<FN>
(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,
MUNICIPAL MONEY MARKET PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO, MANAGEMENT FEES
WOULD BE .37%, .33%, .42% AND .35%, RESPECTIVELY; 12B-1 FEES WOULD BE .55%,
.55%, .57% AND .51%, RESPECTIVELY; OTHER EXPENSES WOULD BE .22%, .24%, .11%
AND .28%, RESPECTIVELY AND TOTAL FUND OPERATING EXPENSES WOULD BE 1.14%,
1.12%, 1.10% AND 1.14%, RESPECTIVELY.
</FN>
</TABLE>
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:
1 Year 3 Year 5 Years 10 Years
------ ------ ------- --------
Money Market*........... $10 $31 N/A N/A
Municipal Money
Market*................ $ 9 $27 N/A N/A
Government Obligations
Money Market*.......... $10 $31 N/A N/A
New York Municipal
Money Market........... $ 8 $25 N/A N/A
* Other classes of these Portfolios are sold with different fees and expenses.
4
<PAGE>
THE EXAMPLE IN THE FEE TABLE ASSUMES THAT ALL DIVIDENDS AND
DISTRIBUTIONS ARE REINVESTED AND THAT THE AMOUNTS LISTED UNDER "ANNUAL FUND
OPERATING EXPENSES (EPSILON CLASSES) 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 Epsilon
Classes of the Fund will bear directly or indirectly. (For more complete
descriptions of the various costs and expenses, see "Management--Investment
Adviser and Sub-Advisor" and "Distribution of Shares" below.) The expense
figures are based on estimated costs and estimated fees expected to be charged
to the Epsilon Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management fees will not vary from the figure reflected in the Fee Table. To the
extent that any service providers assume additional expenses of the Portfolios,
such assumption will have the effect of lowering a Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of Federal,
New York State and New York City personal income taxes at stated rates.
5
<PAGE>
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Epsilon Classes 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 the Epsilon
Classes are not reflected in the yields of the Epsilon Shares, and such fees, if
charged, will reduce the actual return received by shareholders on their
investments. The yield on Shares of the Epsilon Classes may differ from yields
on shares of other classes of the Fund that also represent interests in the same
Portfolio depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA IS SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS
OF THE DATE OF THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
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
6
<PAGE>
banks or foreign branches of U.S. banks where the investment adviser deems the
instrument to present minimal credit risks. Such investments may nevertheless
entail risks that are different from those of investments in domestic
obligations of U.S. banks due to differences in political, regulatory and
economic systems and conditions. The Portfolio may also make interest-bearing
savings deposits in commercial and savings banks in amounts not in excess of 5%
of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper
rated (at the time of purchase) in the two highest rating categories of a
nationally recognized statistical rating organization ("NRSRO"). These rating
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy
7
<PAGE>
the same criteria as set forth above for issuers of commercial paper. If an
issuer of a variable rate demand note defaulted on its payment obligation, the
Portfolio might be unable to dispose of the note because of the absence of an
active secondary market. For this or other reasons, the Portfolio might suffer
a loss to the extent of the default. The Portfolio invests in variable rate
demand notes only when the Portfolio's investment adviser deems the investment
to involve minimal credit risk. The Portfolio's investment adviser also monitors
the continuing creditworthiness of issuers of such notes to determine whether
the Portfolio should continue to hold such notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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
8
<PAGE>
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 purpose. See "Investment Limitations."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 ("1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
9
<PAGE>
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 investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") (e.g., commercial paper rated "A-1" or "A-2" by
S&P), (3) securities that are rated at the time of purchase by the only NRSRO
rating the Security in one of its two highest rating categories for such
securities, and (4) securities that are not rated and are issued by an issuer
that does not have comparable obligations rated by an NRSRO ("Unrated
Securities"), provided that such securities are determined to be of comparable
quality to eligible rated securities. For a more complete description of
eligible securities, see "Investment Objectives and Policies" in the Statement
of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities, including repurchase agreements
which have a maturity of longer than seven days, time deposits with maturities
in excess of seven days, variable rate demand notes with demand periods in
excess of seven
10
<PAGE>
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
11
<PAGE>
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 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
12
<PAGE>
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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During periods
of normal market conditions, at least 80% of the net assets of the Municipal
Money Market Portfolio will be invested in Municipal Obligations. Municipal
Obligations include securities the interest on which is Tax-Exempt Interest,
although to the extent the Portfolio invests in certain private activity bonds
issued after August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of
the interest earned by the Portfolio may constitute an item of tax preference
for purposes of the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable
13
<PAGE>
obligations bearing Tax-Exempt Interest or AMT Interest are unavailable. There
is no percentage limitation on the amount of assets which may be held uninvested
during temporary defensive periods. Uninvested cash reserves will not earn
income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve
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minimal credit risk. The Portfolio's investment adviser also monitors the
continuing creditworthiness of issuers of such notes to determine whether the
Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal
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securities held by a custodian and such receipts include the option to tender
the underlying securities to the sponsor (usually a bank, broker-dealer or other
financial institution). Although the Internal Revenue Service has not ruled on
whether the interest received on derivative securities in the form of
participation interests or custodial receipts is Tax-Exempt Interest, opinions
relating to the validity of, and the tax-exempt status of payments received by,
the Portfolio from such derivative securities are rendered by counsel to the
respective sponsors of such derivatives and relied upon by the Portfolio in
purchasing such securities. Neither the Portfolio nor its investment adviser
will review the proceedings relating to the creation of any tax-exempt
derivative securities or the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market Portfolio--
Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities".
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES -- MONEY MARKET
PORTFOLIO --ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The
Municipal Money Market Portfolio may not, however, change the following
investment
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limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio
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will meet the following limitation on its investments in addition to the
fundamental investment limitations described above. This limitation may be
changed without a vote of shareholders of the Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or
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instrumentalities only when the investment adviser believes that the credit risk
with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. For this and other reasons, an asset-backed security's stated
maturity may be
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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.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
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prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities.
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A more detailed discussion of short sales is contained in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES -- MONEY MARKET
PORTFOLIO --ILLIQUID SECURITIES" AND "Investment Objectives and Policies--
Illiquid Securities" in the Statement of Additional Information.
The Government Obligations 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 the
Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved. The
investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing and
in amounts not in excess of 10% of the value of the Portfolio's assets
at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
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3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts received
during the loan on account of interest on the securities loaned, may
not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such amounts are
qualifying income under Federal income tax provisions applicable to
regulated investment companies.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
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<PAGE>
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal Obligations,
see "Investment Objectives and Policies--Municipal Money Market Portfolio
MUNICIPAL OBLIGATIONS."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market Portfolio--
Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time
24
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deposits maturing in not more than seven days; other debt securities rated
within the two highest ratings assigned by Moody's or S&P; commercial paper
rated in the highest grade by Moody's or S&P; and certificates of deposit issued
by United States branches of United States banks with assets of $1 billion or
more. At no time will more than 20% of the Portfolio's total assets be invested
in taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities". For a more complete
description of eligible securities, see, "INVESTMENT OBJECTIVES AND POLICIES --
MONEY MARKET PORTFOLIO --ELIGIBLE SECURITIES" AND "Investment Objectives and
Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security. In
the opinion of the Portfolio's investment adviser, any risk to the Portfolio
should be limited by its intention to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended, and by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
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The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening economic
problems which could seriously affect their ability and that of other issuers of
New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. In recent years, several different
issues of municipal securities of New York State and its agencies and
instrumentalities and of New York City have been downgraded by Standard & Poor's
Corporation ("S&P") and Moody's Investor Service, Inc. ("Moody's"). On the other
hand, strong demand for New York Municipal Obligations has more recently had the
effect of permitting New York Municipal Obligations to be issued with yields
relatively lower, and after issuance to trade in the market at prices relatively
higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal Obligations. Although no issuers of New York Municipal
Obligations were as of the date of this Prospectus in default with respect to
the payment of their debt obligations, the occurrence of any such default could
adversely affect the shares. Some of the significant financial considerations
relating to the Fund's investments in New York Obligations are summarized in the
Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES -- MONEY MARKET
PORTFOLIO --ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money
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Market Portfolio's outstanding shares. 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 New York Municipal Money Market will be achieved. The New York
Municipal Money Market Portfolio may not, however, change the following
investment limitations 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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that this
limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for
the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second
investment limitation above) shall not be deemed to be Municipal
Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
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So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax (and, with respect
to New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Epsilon Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Epsilon Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or bank wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Epsilon
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.
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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 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 an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Epsilon 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 Epsilon
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.
A broker may offer investors maintaining Accounts the ability
to purchase Epsilon Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Epsilon Class designated by the investor
as the "Primary Epsilon Class" for his Purchase Program. The frequency of
investments and the minimum investment
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requirement will be established by the broker and the Fund. In addition, the
broker may require a minimum amount of cash and/or securities to be deposited in
an Account for participants in its Purchase Program. The description of the
particular broker's Purchase Program should be read for details, and any
inquiries concerning an Account under a Purchase Program should be directed to
the broker. A participant in a Purchase Program may change the designation of
the Primary Epsilon Class at any time by so instructing his broker.
If a broker makes special arrangements under which orders for
Epsilon 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.
DIRECT PURCHASES. An investor may also make direct investments
at any time in any Epsilon Class he selects through any broker that has entered
into a dealer agreement with the Distributor (a "Dealer"). An investor may make
an initial investment in any of the Epsilon Classes by mail by fully completing
and signing an application obtained from a Dealer (the "Application"),
specifying the Portfolio in which he wishes to invest, and mailing it, together
with a check payable to "The Epsilon Family" c/o PFPC, P.O. Box 8950,
Wilmington, Delaware 19899. The check must specify the name of the Portfolio for
which shares are being purchased. An Application will be returned to the
investor unless it contains the name of the Dealer from whom it was obtained.
Subsequent purchases may be made through a Dealer or 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 in any of the Epsilon Classes by having his bank or
Dealer wire Federal Funds to the Fund's Custodian, PNC Bank, National
Association. An investor's bank or Dealer 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) 447-1139 (in Delaware call collect (302) 791-1149), and
provide it with your name, address, telephone number, Social Security
or Tax Identification Number, the Epsilon 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
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also notify the Fund's transfer agent prior to wiring funds.)
B. Instruct your bank or Dealer to wire the
specified amount, together with your assigned account number, to the
Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Epsilon 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 Epsilon Shares may redeem Epsilon 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 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
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<PAGE>
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.
An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Epsilon Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Epsilon Family c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. 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, each signature must be guaranteed. A signature guarantee verifies the
authenticity of your signature and the guarantor must be a participant in a
STAMP Program (a Securities Transfer Agents Medallion Program). You may call the
Transfer Agent at (800) 583-7719 to determine whether the entity that will
guarantee the signature is an eligible guarantor. Guarantees must be signed by
an authorized signatory of the bank, trust company or member firm and "Signature
Guaranteed" must appear with the signature.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE TO
REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800)447-7719 (in Delaware call collect
(302)791-1153). 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 losses
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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. 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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a
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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 REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Epsilon 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.
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NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on
each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE IS closed on the customary national
business holidays of New Year's Day, President's 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)), 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 each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Epsilon Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio.
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INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank serves as the sub-ADVISER for each of the
Portfolios other than the New York Municipal Money Market Portfolio, which has
no sub-ADVISER. PNC Bank and its predecessors have been in the business of
managing the investments of fiduciary and other accounts in the Philadelphia
area since 1847. PNC Bank 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 Broad and Chestnut
Streets, Philadelphia, Pennsylvania 19101, is a wholly owned subsidiary of PNC
Bancorp, Inc. PNC Bancorp, Inc., is a bank holding company and a wholly owned
subsidiary of PNC Bank Corp., a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-ADVISER to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER, provides research and credit
analysis and provides PIMC with certain other services. In entering into
Portfolio transactions for a Portfolio with a broker, PIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
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PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees have no
effect on the advisory fees payable by such Portfolio to PIMC. In addition, PIMC
may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its advisory agreements with the Fund relating to any
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, .05% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and 0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .28%, .12% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operation, including
matters relating to the maintenance of financial records and accounting. PFPC
will be entitled to an administration fee, computed daily and payable monthly at
a rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of
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Additional Information under "Investment Advisory, Distribution and Servicing
Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These expenses include, but
are not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest, legal fees,
custodian fees, auditing fees, brokerage fees and commissions, certain of the
fees and expenses of registering and qualifying the Portfolio and its shares for
distribution under Federal and state securities laws, expenses of preparing
prospectuses and statements of additional information and of printing and
distributing prospectuses and statements of additional information annually to
existing shareholders that are not attributable to a particular class, the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class, fidelity bond and
directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Portfolio's investment adviser under its advisory agreement with the
Portfolio. Any general expenses of the Fund that are not readily identifiable as
belonging to a particular investment portfolio of the Fund will be allocated
among all investment portfolios of the Fund based upon the relative net assets
of the investment portfolios at the time such expenses were accrued. In
addition, distribution expenses, transfer agency expenses, expenses of
preparing, printing and distributing prospectuses, statements of additional
information, proxy statements and reports to shareholders, and registration fees
identified as belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
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DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of each
of the Epsilon Classes of the Fund pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Epsilon Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Epsilon Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Epsilon Class. The actual amount of such compensation is agreed
upon from time to time by the Fund's Board of Directors and the Distributor.
Under the Distribution Contracts the Distributor has agreed to accept
compensation for its services thereunder and under the Plans in the amount of
.60% of the average daily net assets of the relevant Class on an annualized
basis in any year. Pursuant to the conditions of an exemptive order granted by
the Securities and Exchange Commission, the Distributor has agreed to waive its
fee with respect to a Epsilon Class on any day to the extent necessary to assure
that the fee required to be accrued by such Class does not exceed the income of
such Class on that day. In addition, the Distributor may, in its discretion,
voluntarily waive from time to time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Epsilon Class
the fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to
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reimburse the Distributor for the actual expenses the Distributor may incur in
fulfilling its obligations under a Plan on behalf of the relevant Epsilon Class.
Thus, under each of the Plans, even if the Distributor's actual expenses exceed
the fee payable to the Distributor thereunder at any given time, the Fund will
not be obligated to pay more than that fee. If the Distributor's actual expenses
are less than the fee it receives, the Distributor will retain the full amount
of the fee.
The Plans in effect with respect to the Epsilon Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will remain
in effect only if approved at least annually by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto
("12b-1 Directors"). Each of the Plans may be terminated at any time by vote of
a majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Epsilon Class. The fee set forth
above will be paid by the Fund on behalf of the relevant Epsilon Class to the
Distributor unless and until the relevant Plan is terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Epsilon Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the
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Portfolios and their shareholders and is not intended as a substitute for
careful tax planning. Accordingly, investors in the Portfolios should consult
their tax advisers with specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are paid in cash or reinvested in additional shares.
None of the Portfolios intends to make distributions that will be eligible for
the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986, will generally constitute an item of tax preference for corporate and
noncorporate taxpayers in determining Federal alternative minimum tax liability.
The New York Municipal Money Market Portfolio may invest up to 20% of its net
assets in such private activity bonds and the Municipal Money Market Portfolio
may invest up to 100% of its net assets in such private activity bonds, although
the Municipal Money Market Portfolio does not presently intend to do
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so. Secondly, tax-exempt interest and "exempt interest dividends" derived from
all Municipal Obligations must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustment for Federal alternative
minimum tax purposes. Investors should be aware of the possibility of state and
local alternative minimum or minimum income tax liability, in addition to
Federal alternative minimum tax. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments. Exempt interest dividends derived from interest on
New York Municipal Obligations will also be exempt from New York State and New
York City personal income (but not corporate franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually the percentages of its
net investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day. In addition, the New York Municipal Money
Market Portfolio will determine annually the percentage amounts exempt from New
York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. The exclusion or exemption of interest income for Federal
income tax purposes, or New York State or New York City personal income tax
purposes, in most cases does not result in an exemption under the tax laws of
any other state or local authority. Investors who are subject to tax in other
states or localities should consult their own tax advisers about the taxation of
dividends and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
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An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and, therefore,
not only would not gain any additional benefit from the Portfolios' dividends
being tax-exempt but also such dividends would be taxable when distributed to
the beneficiary.
Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income tax
consequences described above.
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 to them.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE EPSILON
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CLASSES AND DESCRIBE ONLY THE INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS,
CONTRACTS AND OTHER MATTERS RELATING TO THE EPSILON CLASSES.
Each share that represents an interest in a Portfolio has an
equal proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a share
has a different class designation than another share representing an interest in
that Portfolio. Shares of the Fund do not have preemptive or conversion rights.
When issued for payment as described in this Prospectus, Shares of the Fund will
be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of 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.
The Fund will issue share certificates for any of the Epsilon
Shares only upon the written request of a shareholder sent to PFPC.
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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) 447-1139 (in Delaware call
collect (302) 791-1149).
<PAGE>
EPSILON FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Epsilon
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Epsilon Family 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 2
Investment Objectives and Policies ....... 2 6
Directors and Officers ................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 35 36
Portfolio Transactions ................... 40 N/A
Purchase and Redemption Information ...... 41 29
Valuation of Shares ...................... 42 36
Taxes .................................... 44 41
Description of Shares .................... 49 44
Additional Information Concerning Fund
Shares.................................. 51 --
Miscellaneous ............................ 52 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 four classes of shares (the "Bedford Classes") representing
interests in four investment portfolios (the "Portfolios") of the Fund: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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<PAGE>
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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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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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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<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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not
rated and are issued by an issuer that does not have comparable obligations
rated by an NRSRO ("Unrated Securities"), provided that such securities are
determined to be of comparable quality to a security satisfying (2) or (3)
above; and (5) long-term obligations that have remaining maturities in excess of
397 calendar days that are subject to a demand feature or put (such as a
guarantee, a letter of credit or similar credit enhancement) ("demand
instrument") (a) that are unconditional (readily exercisable in the event of
default), provided that the demand feature satisfies (2), (3) or (4) above, or
(b) that are not unconditional, provided that the demand feature satisfies (2),
(3) or (4) above, and the demand instrument or long-term obligations of the
issuer satisfy (2) or (4) above for long-term debt obligations. The Board of
Directors will approve or ratify any purchases by the Money Market and
Government Obligations Money Market Portfolios of securities that are rated by
only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
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contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's expressed doubts
about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based upon revenues of
$29.508 billion, but budget gaps of $1.6 billion, $1.7 billion and $2.3 billion
in fiscal years 1994, 1995, and 1996, respectively. The 1993-1996 Financial Plan
proposes to eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
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upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
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On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
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Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
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borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary purposes
(and with respect to the Money Market Portfolio only, except for
reverse repurchase agreements) and then in amounts not in excess of 10%
of the value of the Portfolio's total assets at the time of such
borrowing, and only if after such borrowing there is asset coverage of
at least 300 percent for all borrowings of the Portfolio; or mortgage,
pledge, hypothecate any of its assets except in connection with such
borrowings and then, with respect to the Money Market Portfolio, in
amounts not in excess of 10% of the value of a Portfolio's total assets
at the time of such borrowing and, with respect to the Municipal Money
Market Portfolio, in amounts not in excess of the lesser of the dollar
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amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with a
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(5) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(7) purchase or sell commodities or commodity contracts;
(8) invest in oil, gas or mineral exploration or development
programs;
(9) make loans except that a Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and (except for the Municipal Money Market Portfolio)
may enter into repurchase agreements;
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(10) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(11) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
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of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
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.
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2. The Money Market Portfolio will limit its purchases of
Second Tier Securities, which are eligible securities other than First
Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its purchases of
Second Tier Securities of one issuer to the greater of 1% of its total
assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury bills, notes
and other obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, and repurchase agreements relating to
such obligations. There is no limit on the amount of the Portfolio's
assets which may be invested in the securities of any one issuer of
obligations that the Portfolio is permitted to purchase.
2. Borrow money, except from banks for temporary purposes, and
except for reverse repurchase agreements, and then in an amount not
exceeding 10% of the value of the Portfolio's total assets, and only if
after such borrowing there is asset coverage of at least 300 percent
for all borrowings of the Portfolio; or mortgage, pledge, hypothecate
its assets except in connection with any such borrowing and in amounts
not in excess of 10% of the value of the Portfolio's assets at the time
of such borrowing; or purchase portfolio securities while borrowings in
excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio by enabling the Portfolio to
meet redemption requests where the liquidation of portfolio securities
is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations, may enter into repurchase agreements for securities,
and may lend portfolio securities against collateral consisting of cash
or securities which are consistent with the Portfolio's permitted
investments, which is equal at all times to at least 100% of the value
of the securities loaned. There is no investment restriction on the
amount of securities that may be loaned, except that payments received
on such loans, including amounts received during the loan on account of
interest on the securities loaned, may not (together with all
non-qualifying income) exceed 10% of the Portfolio's annual gross
income (without offset for realized capital gains) unless, in the
opinion of counsel to the Fund, such amounts are qualifying income
under Federal income tax provisions applicable to regulated investment
companies.
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The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary purposes and
except for reverse repurchase agreements, and then in amounts not in
excess of 10% of the value of the Portfolio's total assets at the time
of such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in connection
with such borrowings and then in amounts not in excess of 10% of the
value of a Portfolio's total assets at the time of such borrowing; or
purchase portfolio securities while borrowings in excess of 5% of the
Portfolio's net assets are outstanding. (This borrowing provision is
not for investment leverage, but solely to facilitate management of the
Portfolio's securities by enabling the Portfolio to meet redemption
requests where the liquidation of portfolio securities is deemed to be
disadvantageous or inconvenient);
(2) purchase securities on margin, except for short-term
credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to the
extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a short
position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the Portfolio
may invest in securities secured by real estate or interests therein or
issued by companies which invest in real estate or interests therein;
(6) purchase or sell commodities or commodity contracts;
(7) invest in oil, gas or mineral exploration or development
programs;
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(8) make loans except that the Portfolio may purchase or hold
debt obligations in accordance with its investment objective, policies
and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other investment
company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising control or
management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
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<PAGE>
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
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<PAGE>
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 Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since 1985, Executive
14 Wall Street Vice President of
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc. and Gruntal
Financial Corp.
Francis J. McKay - 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.),
Mart PMM, Inc. (formerly
Pennsauken Merchandise
Mart, Inc.) (shopping
centers); and Since
1975, Director and
Executive Vice President,
Cellucap Mfg. Co., Inc.
(manufacturer of
disposable headwear).
32
<PAGE>
Principal Occupation
Name, Address, and Age Position with Fund During Past Five Years
- ---------------------- ------------------ ----------------------
Julian A. Brodsky - 63 Director Director, and Vice
1234 Market Street Chairman, Comcast
16th Floor Corporation; Director,
Philadelphia, PA 19107-3723 Comcast Cablevision of
Philadelphia (cable
television and
communications) and
Nextel (Wireless
communications).
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 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
103 Bellevue Parkway Center; Vice President
Wilmington, DE 19809 and Trustee, Pennsylvania
School for the Deaf;
Trustee, Immaculata
College; Vice President
and Treasurer of various
investment companies
advised by PNC Bank
Institutional Management
Corporation.
Morgan R. Jones - 57 Secretary Partner, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Pennsylvania (formerly,
Chairman and Chief
Executive Officer);
Director, Rocking Horse
Child Care Centers of
America, Inc.
33
<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 Gruntal & Co.,
Inc., a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as
that term is defined in the 1940 Act) of the Fund $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 von
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 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 sub-advisor to all Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor,
34
<PAGE>
and the Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal
Money Market and New York Municipal Money Market Portfolios and the Fund's
transfer and dividend disbursing agent, and Counsellors Securities Inc. (the
"Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
35
<PAGE>
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES WITH RESPECT TO THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017 OF ADVISORY FEES WITH RESPECT TO
THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $2,274,697 in advisory fees with respect to
the Money Market Portfolio, $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio, $780,122 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $187,660 with respect to the New York Municipal
Money Market Portfolio. During the same year, PIMC waived $2,589,882 of advisory
fees with respect to the Money Market Portfolio, $1,041,321 of advisory fees
with respect to the Municipal Money Market Portfolio, $398,363 of advisory fees
with respect to the Government Obligations 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, $7,733 in advisory fees with respect
to the Municipal Money Market Portfolio, $580,435 in advisory fees with respect
to Government Obligations Money Market Portfolio and waived all of the
investment advisory fees payable to it of $193,386 with respect to the New York
Municipal Money Market Portfolio under its Advisory Contract with the Fund.
During the same year, PIMC waived $2,255,986 of advisory fees with respect to
the Money Market Portfolio, $1,091,646 of advisory fees with
36
<PAGE>
respect to the Municipal Money Market Portfolio, $461,938 of advisory fees with
respect to the Government Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional information and supplements thereto to existing shareholders, as
well as reports to shareholders and proxy material that are not attributable to
a class; (m) any extraordinary expenses; (n) fees, voluntary assessments and
other expenses incurred in connection with membership in investment company
organizations; (o) costs of mailing and tabulating proxies and costs of
shareholders' and directors' meetings; (p) costs of PIMC's use of independent
pricing services to value a portfolio's securities; and (q) the cost of
investment company literature and other publications provided by the Fund to its
directors and officers. Distribution expenses, transfer agency expenses,
expenses of preparation, printing and mailing prospectuses, statements of
37
<PAGE>
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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by Shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data, clerical,
accounting, and bookkeeping services, and certain other services required by the
Fund. PFPC has also agreed to prepare and file various reports with the
appropriate regulatory agencies, and prepare materials required by the SEC or
any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
38
<PAGE>
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Epsilon Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Epsilon Classes, (b) addresses and mails all
communications by each Portfolio to record owners of shares of each such Class,
including reports to shareholders, dividend and distribution notices and proxy
materials for its meetings of shareholders, (c) maintains shareholder accounts
and, if requested, sub-accounts and (d) makes periodic reports to the Fund's
Board of Directors concerning the operations of each Epsilon Class. PFPC may, on
30 days' notice to the Fund, assign its duties as transfer and dividend
disbursing agent to any other affiliate of PNC Bank Corp. For its services to
the Fund under the Transfer Agency Agreement, PFPC receives a fee at the annual
rate of $15.00 per account in each Portfolio for orders which are placed via
third parties and relayed electronically to PFPC, and at an annual rate of
$17.00 per account in each Portfolio for all other orders, exclusive of
out-of-pocket expenses and also receives a fee for each redemption check cleared
and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios.
39
<PAGE>
Pursuant to the Shareholder Servicing Agreements, the Authorized Dealers have
agreed to prepare monthly account statements, process dividend payments from the
Fund on behalf of their customers and to provide sweep processing for uninvested
cash balances for customers participating in a cash management account. In
addition to the shareholder records maintained by PFPC, Authorized Dealers may
maintain duplicate records for their customers who are shareholders of the
Portfolios for purposes of responding to customer inquiries and brokerage
instructions. In consideration for providing such services, Authorized Dealers
may receive fees from PFPC. Such fees will have no effect upon the fees paid by
the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Epsilon Classes, (collectively, the "Distribution Contracts") and
separate Plans of Distribution for each of the Epsilon Classes (collectively,
the "Plans"), all of which were adopted by the Fund in the manner prescribed by
Rule 12b-1 under the 1940 Act, the Distributor will use its best efforts to
distribute shares of each of the Epsilon Classes. As compensation for its
distribution services, the Distributor will receive, pursuant to the terms of
the Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Epsilon Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Epsilon Class
of the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios was approved by the sole
shareholder of each Epsilon Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
the Fund regarding all amounts expended under the Plan and the purposes for
which such expenditures were made, including commissions, advertising, printing,
interest, carrying charges and any allocated overhead expenses; (2) the Plan
will continue in effect only so long as it is approved at least annually, and
any material amendment thereto is approved, by the Fund's directors, including
the 12b-1 Directors, acting in person at a meeting called for said purpose; (3)
the aggregate amount to be spent by the Fund on the distribution of the Fund's
shares of the Epsilon 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 Epsilon Class; and (4) while the
40
<PAGE>
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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing
41
<PAGE>
entities except to the extent permitted by SEC exemptive order or by applicable
law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period
42
<PAGE>
during which the New York Stock Exchange (the "NYSE") is closed (other than
customary weekend and holiday closings), or during which trading on said
Exchange is restricted, or during which (as determined by the SEC by rule or
regulation) an emergency exists as a result of which disposal or valuation of
portfolio securities is not reasonably practicable, or for such other periods as
the SEC may permit. (A Portfolio may also suspend or postpone the recordation of
the transfer of its shares upon the occurrence of any of the foregoing
conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE IS closed on WEEKENDS AND 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.
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will
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promptly consider whether any action should be initiated to eliminate or reduce
material dilution or other unfair results to shareholders. Such action may
include redeeming shares in kind, selling portfolio securities prior to
maturity, reducing or withholding dividends, and utilizing a net asset value per
share as determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and depreciation.
Compound effective yields are computed by adding 1 to the base period return
(calculated as described above), raising the sum to a power equal to 365/7 and
subtracting 1.
Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should
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be given to each fund's investment policies, including the types of investments
made, lengths of maturities of the portfolio securities, the method used by each
fund to compute the yield (methods may differ) and whether there are any special
account charges which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT 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 Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at
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least 90% of its net tax-exempt interest income, if any, for the year (the
"Distribution Requirement") and satisfies certain other requirements of the Code
that are described below. Distributions of investment company taxable income and
net tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be
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invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in two or
more issuers which such Portfolio controls and which are engaged in the same or
similar trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign corporations
engaged in a trade or business in the United States. Prospective investors
should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues
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derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenue derived by all users of such facilities, (b)
who occupies more than 5% of the entire usable area of such facilities, or (c)
for whom such facilities or a part thereof were specifically constructed,
reconstructed or acquired. "Related persons" include certain related natural
persons, affiliated corporations, a partnership and its partners and an S
Corporation and its shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
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capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each Portfolio intends to
distribute all of its taxable income currently, no Portfolio anticipates
incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to
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the Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 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, 50 million shares are classified as Class X Common Stock (U.S. Core
Equity), 50 million shares are classified as Class Y Common Stock (U.S. Core
Fixed Income), 50 million shares are classified as Class Z Common Stock (Global
Fixed Income), 50 million shares are classified as Class AA Common Stock.
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(Municipal Bond), 50 million shares are classified as Class BB Common Stock (BEA
Balanced), 50 million shares are classified as Class CC Common Stock (Short
Duration), 100 million shares are classified as Class DD COMMON STOCK, 100
million shares are classified as Class EE COMMON STOCK, 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 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.
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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 Classes Epsilon 1, Epsilon 2, Epsilon 3, and Epsilon 4 Common Stock
constitute the Epsilon Family Classes. Under the Fund's charter, the Board of
Directors has the power to classify or reclassify any unissued shares of Common
Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN
separate "families": the RBB Family, the Cash Preservation Family, the Sansom
Street Family, the Bedford Family, the Bradford Family, the BEA 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 Cash Preservation
Family represents interests in the Money Market and Municipal Money Market
Portfolios; the Bedford Family represents interests in the Money Market,
Municipal Money Market, Government Obligations 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 INTERESTS IN ONE NON-MONEY MARKET PORTFOLIO; the
Janney Montgomery Scott Money Funds Family and Beta, Gamma, Delta, 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.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise,
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to the holders of the outstanding securities of an investment company such as
the Fund shall not be deemed to have been effectively acted upon unless approved
by the holders of a majority of the outstanding shares of each portfolio
affected by the matter. Rule 18f-2 further provides that a portfolio shall be
deemed to be affected by a matter unless it is clear that the interests of each
portfolio in the matter are identical or that the matter does not affect any
interest of the portfolio. Under the Rule the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a portfolio only if approved by the holders of a
majority of the outstanding voting securities of such portfolio. However, the
Rule also provides that the ratification of the selection of independent public
accountants, the approval of principal underwriting contracts and the election
of directors are not subject to the separate voting requirements and may be
effectively acted upon by shareholders of an investment company voting without
regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 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 the Statements of
Additional Information of the Fund relating to the RBB Family, the Cash
Preservation Classes, the Sansom Street Family, the Bedford Family and the
Bradford Family which have been audited by Coopers & Lybrand L.L.P. as set forth
in their reports, which also appear in the Statements of Additional Information
of the Fund relating to the RBB Family, the Cash Preservation Classes, the
Sansom Street Family, the Bedford Family and the Bradford Family, are
incorporated herein and made a part hereof in reliance upon the reports 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
53
<PAGE>
Shares" above. The Fund does not know whether such persons also beneficially own
such shares.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. Haugh Caring TR DTD 8/12/91 15.3
40 Plaza Square
Apt. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
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 (Class I) FAO Paine Webber and Managed 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
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
ROBERTSON Stephens & Co. 8.6
FBO Exclusive Benefit Investors
C/O ERIC MOORE
555 California STREET/NO. 2600
San Francisco, CA 94101
BRADFORD MUNICIPAL MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
SC JOHNSON & SON, INC. RETIREMENT PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Markets Equity Wachovia Bank North Carolina Trust for Carolina 15.7
Portfolio (Class V) Power & Light 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
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
One Wall Street
New York, NY 10286
WERNER & Pfleiderer Pension 7.5
Plan Employees
663 E. Crescent Avenue
Ramsey, NJ 07446
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
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 New England UFCW & Employers' Pension 24.5
Fixed Income Portfolio 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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
Sherman Oaks, CA 91423
PATTERSON & CO. 25.7
P. O. BOX 7829
PHILADELPHIA, PA 19101
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C>
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 LP 18.7
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 (CLASS HH) SPECIAL CUSTODY ACCOUNT FOR THE
EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
60
<PAGE>
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.
61
<PAGE>
A-1
APPENDIX
DESCRIPTION OF BOND RATINGS
The following summarizes the highest two ratings used by
Standard & Poor's Corporation for bonds:
AAA-Debt rated AAA has the highest rating assigned by
Standard & Poor's. Capacity to pay interest and repay
principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA issues only
in small degree. The "AA" rating may be modified by the
addition of a plus or minus sign to show relative standing
within the AA rating category.
The following summarizes the highest two ratings used by
Moody's Investors Service, Inc. for bonds:
Aaa-Bonds that are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally
strong position of such issues.
Aa-Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude
or there may be other elements present which make the
long-term risks appear somewhat larger than in Aaa securities.
Moody's applies numerical modifiers (1, 2 and 3) with respect to bonds rated AA.
The modifier 1 indicates that the bond being rated ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the bond ranks in the lower end of its generic
rating category.
The rating SP-1 is the highest rating assigned by Standard &
Poor's to municipal notes and indicates very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a plus (+) designation.
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
A-1
<PAGE>
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
<PAGE>
PROSPECTUS
THE ZETA FAMILY
MONEY MARKET PORTFOLIO
- ---------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- ---------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- ---------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
December 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION ........................................................... 2
FINANCIAL HIGHLIGHTS ................................................... 6
INVESTMENT OBJECTIVES AND POLICIES ..................................... 6
PURCHASE AND REDEMPTION OF SHARES ...................................... 28
NET ASSET VALUE ........................................................ 34
MANAGEMENT ............................................................. 35
DISTRIBUTION OF SHARES ................................................. 38
DIVIDENDS AND DISTRIBUTIONS ............................................ 40
TAXES .................................................................. 40
DESCRIPTION OF SHARES .................................................. 43
OTHER INFORMATION ...................................................... 44
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
<PAGE>
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE ZETA FAMILY
OF
THE RBB FUND, INC.
The Zeta Family consists of four classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Zeta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, PNC BANK, NATIONAL ASSOCIATION OR ANY OTHER BANK AND
SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. INVESTMENTS IN SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. THERE
CAN BE NO ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
Management Corporation Management Corporation serves as
investment adviser for the Fund, PNC Bank, National Association ("PNC BANK")
serves as sub-ADVISER for all Portfolios other than the New York Municipal
Money Market Portfolio, which has no sub-ADVISER, and serves as custodian for
the Fund, PFPC Inc. ("PFPC") serves as administrator to the Municipal Money
Market and New York Municipal Money Market Portfolios and transfer and dividend
disbursing agent for the Fund. Counsellors Securities Inc. acts as distributor
for the Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Zeta Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, and enters into repurchase agreements relating to
such obligations.
2
<PAGE>
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios will be
able to maintain a stable net asset value of $1.00 per share.
The Fund's investment adviser is Management Corporation
Management Corporation ("PIMC"). PNC Bank, National Association ("PNC Bank")
serves as sub-advisor to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-advisor, and serves as custodian to the Fund,
and PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and
New York Municipal Money Market Portfolios and 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 any of the Zeta
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Zeta Classes is subject to certain
risks, as set forth in detail under "Investment Objectives and Policies." Any or
all of the Portfolios, 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
Zeta Shares, please refer to the section of this Prospectus entitled "Purchase
and Redemption of Shares."
2
<PAGE>
FEE TABLE
ESTIMATED ANNUAL FUND OPERATING EXPENSES (ZETA CLASSES)
AFTER EXPENSE REIMBURSEMENTS AND WAIVERS (2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Management fees (after
waivers)(1)............ .20% .05% .30% .0%
12b-1 fees (after
waivers)(1)............ .55 .55 .57 .51
Other Expenses (after
reimbursements)...... .22 .24 .105 .27
--- --- ---- ---
Total Fund Operating
Expenses (Zeta
Classes) (after
waivers and
reimbursements)...... .97% .84% .975% .78%
==== ==== ===== ====
<FN>
(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,
MUNICIPAL MONEY MARKET PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO, MANAGEMENT FEES
WOULD BE .37%, .33%, .42% AND 35%, RESPECTIVELY; 12B-1 FEES WOULD BE .55%,
.55%, .57% AND .51%, RESPECTIVELY; OTHER EXPENSES WOULD BE .22%, .24%, .11%
AND .28%, RESPECTIVELY AND TOTAL FUND OPERATING EXPENSES WOULD BE 1.14%,
1.12%, 1.10% AND 1.14%, RESPECTIVELY.
</FN>
</TABLE>
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:
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
Money Market*........... $10 $31 N/A N/A
Municipal Money
Market*................ $ 9 $27 N/A N/A
Government Obligations
Money Market*.......... $10 $31 N/A N/A
New York Municipal
Money Market........... $ 8 $25 N/A N/A
* Other classes of these Portfolios are sold with different fees and expenses.
4
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THE EXAMPLE IN THE FEE TABLE ASSUMES THAT ALL DIVIDENDS AND
DISTRIBUTIONS ARE REINVESTED AND THAT THE AMOUNTS LISTED UNDER "ANNUAL FUND
OPERATING EXPENSES (ZETA CLASSES) 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 Zeta
Classes 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 estimated costs and estimated fees expected to be charged
to the Zeta Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management fees will not vary from the figure reflected in the Fee Table. To the
extent that any service providers assume additional expenses of the Portfolios,
such assumption will have the effect of lowering a Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount necessary to reflect the payment of Federal,
New York State and New York City personal income taxes at stated rates.
5
<PAGE>
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Zeta Classes 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 the Zeta Classes are not
reflected in the yields of the Zeta Shares, and such fees, if charged, will
reduce the actual return received by shareholders on their investments. The
yield on Shares of the Zeta Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA ID SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS
OF THE DATE OF THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
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
6
<PAGE>
adviser deems the instrument to present minimal credit risks. Such investments
may nevertheless entail risks that are different from those of investments in
domestic obligations of U.S. banks due to differences in political, regulatory
and economic systems and conditions. The Portfolio may also make
interest-bearing savings deposits in commercial and savings banks in amounts not
in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper
rated (at the time of purchase) in the two highest rating categories of a
nationally recognized statistical rating organization ("NRSRO"). These rating
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending upon the
note involved) to demand payment of the principal of a note. The notes are not
typically rated by credit rating agencies, but issuers of variable rate demand
notes must satisfy the same criteria as set forth above for issuers of
commercial
7
<PAGE>
paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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
8
<PAGE>
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 purpose. See "Investment Limitations."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal Obligations, see "Investment Objectives and
Policies--Municipal Money Market Portfolio--Municipal Obligations."
9
<PAGE>
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 investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the two
highest rating categories by one or more nationally recognized statistical
rating organizations ("NRSROs") in the two highest rating categories (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
10
<PAGE>
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
11
<PAGE>
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 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
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<PAGE>
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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During periods
of normal market conditions, at least 80% of the net assets of the Municipal
Money Market Portfolio will be invested in Municipal Obligations. Municipal
Obligations include securities the interest on which is Tax-Exempt Interest,
although to the extent the Portfolio invests in certain private activity bonds
issued after August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of
the interest earned by the Portfolio may constitute an item of tax preference
for purposes of the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable
13
<PAGE>
obligations bearing Tax-Exempt Interest or AMT Interest are unavailable. There
is no percentage limitation on the amount of assets which may be held uninvested
during temporary defensive periods. Uninvested cash reserves will not earn
income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other reasons, suffer a loss to the extent of the default. The
Portfolio invests in variable rate demand notes only when the Portfolio's
investment adviser deems the investment to involve
14
<PAGE>
minimal credit risk. The Portfolio's investment adviser also monitors the
continuing creditworthiness of issuers of such notes to determine whether the
Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal amount thereof. In some cases, Municipal
Obligations are represented by custodial receipts evidencing rights to future
principal or interest payments, or both, on underlying municipal
15
<PAGE>
securities held by a custodian and such receipts include the option to tender
the underlying securities to the sponsor (usually a bank, broker-dealer or other
financial institution). Although the Internal Revenue Service has not ruled on
whether the interest received on derivative securities in the form of
participation interests or custodial receipts is Tax-Exempt Interest, opinions
relating to the validity of, and the tax-exempt status of payments received by,
the Portfolio from such derivative securities are rendered by counsel to the
respective sponsors of such derivatives and relied upon by the Portfolio in
purchasing such securities. Neither the Portfolio nor its investment adviser
will review the proceedings relating to the creation of any tax-exempt
derivative securities or the basis for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities".
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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 Municipal Money Market Portfolio will be achieved. The
Municipal Money Market Portfolio may not, however, change the following
investment
16
<PAGE>
limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio
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will meet the following limitation on its investments in addition to the
fundamental investment limitations described above. This limitation may be
changed without a vote of shareholders of the Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so under law. The Portfolio will invest in the obligations of
such agencies or
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instrumentalities only when the investment adviser believes that the credit risk
with respect thereto is minimal.
Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with respect to the underlying
debt instruments. For this and other reasons, an asset-backed security's stated
maturity may be
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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.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average remaining life of mortgage-related securities for the
Portfolio, the investment adviser will rely on such data to evaluate the
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prepayment risk in a particular security except to the extent such data are
deemed unreasonable by the investment adviser. The investment adviser might deem
such data unreasonable if such data appeared to present a significantly
different average remaining expected life for a security when compared to data
relating to the average remaining life of comparable securities as provided by
other independent mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the Fund's
custodian or a qualified sub-custodian. While the short sale is open, the
Portfolio will maintain in a segregated account an amount of securities equal in
kind and amount to the securities sold short or securities convertible into or
exchangeable for such equivalent securities.
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A more detailed discussion of short sales is contained in the Statement of
Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR MORE COMPLETE DESCRIPTION OF
ILLIQUID SECURITIES SEE "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES AND "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The Government Obligations 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 the
Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved. The
investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing and
in amounts not in excess of 10% of the value of the Portfolio's assets
at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
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3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts received
during the loan on account of interest on the securities loaned, may
not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such amounts are
qualifying income under Federal income tax provisions applicable to
regulated investment companies.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
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MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal Obligations,
see "Investment Objectives and Policies--Municipal Money Market Portfolio
MUNICIPAL OBLIGATIONS."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market Portfolio--
Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time
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deposits maturing in not more than seven days; other debt securities rated
within the two highest ratings assigned by Moody's or S&P; commercial paper
rated in the highest grade by Moody's or S&P; and certificates of deposit issued
by United States branches of United States banks with assets of $1 billion or
more. At no time will more than 20% of the Portfolio's total assets be invested
in taxable short-term securities unless the Portfolio's investment adviser has
determined to temporarily adopt a defensive investment policy in the face of an
anticipated softening in the market for Municipal Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities." For a more complete
description of eligible securities, see "Investment OBJECTIVES AND
POLICIES--MONEY MARKET PORTFOLIO--ELLIGIBLE SECURITIES" AND "INVESTMENT
Objectives and Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security. In
the opinion of the Portfolio's investment adviser, any risk to the Portfolio
should be limited by its intention to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended, and by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
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The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York Municipal Obligations to meet
their continuing obligations for the payment of principal and interest on their
securities. New York State and New York City face long-term worsening economic
problems which could seriously affect their ability and that of other issuers of
New York Municipal Obligations to meet their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. On the other hand, strong demand for New
York Municipal Obligations has more recently had the effect of permitting New
York Municipal Obligations to be issued with yields relatively lower, and after
issuance to trade in the market at prices relatively higher, than comparably
rated municipal obligations issued by others. A recurrence of the financial
difficulties previously experienced by such issuers could result in defaults or
declines in the market values of their existing obligations and, possibly, in
the obligations of other issuers of New York Municipal Obligations. In addition,
the State's fiscal year 1992-1993 budget calls for a freeze on personal income
($730 million) and corporation ($270 million) tax reductions that had been
scheduled to occur during the 1992-1993 fiscal year.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES AND "Investment Objectives and Policies--Illiquid
Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money Market Portfolio's outstanding shares. 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 New York Municipal Money Market will be
achieved. The New York Municipal Money Market Portfolio may not, however, change
the following investment limitations without such a vote of
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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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that this
limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for
the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second
investment limitation above) shall not be deemed to be Municipal
Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
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1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax (and, with respect
to New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Zeta Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Zeta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or bank wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Zeta 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 accompanied by Federal Funds and received by the
Fund after 12:00 noon Eastern Time but prior to 4:00 p.m.
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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 an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Zeta 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 Zeta 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.
A broker may offer investors maintaining Accounts the ability
to purchase Zeta Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Zeta Class designated by the investor as
the "Primary Zeta Class" for his Purchase Program. The frequency of investments
and the minimum investment requirement will be established by the broker and the
Fund. In addition, the broker may require a minimum amount of cash and/or
securities to be deposited in an Account for participants in its Purchase
Program. The description of the particular broker's Purchase Program should be
read for details, and any inquiries concerning an Account under a Purchase
Program should be directed to the broker. A participant in a Purchase Program
may change the
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designation of the Primary Zeta Class at any time by so instructing his broker.
If a broker makes special arrangements under which orders for
Zeta 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.
DIRECT PURCHASES. An investor may also make direct investments
at any time in any Zeta Class he selects through any broker that has entered
into a dealer agreement with the Distributor (a "Dealer"). An investor may make
an initial investment in any of the Zeta Classes by mail by fully completing and
signing an application obtained from a Dealer (the "Application"), specifying
the Portfolio in which he wishes to invest, and mailing it, together with a
check payable to "The Zeta Family" c/o PFPC, P.O. Box 8950, Wilmington, Delaware
19899. The check must specify the name of the Portfolio for which shares are
being purchased. An Application will be returned to the investor unless it
contains the name of the Dealer from whom it was obtained. Subsequent purchases
may be made through a Dealer or 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 in any of the Zeta Classes by having his bank or Dealer
wire Federal Funds to the Fund's Custodian, PNC Bank, National Association. An
investor's bank or Dealer 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) 447-1139 (in Delaware call collect (302) 791-1149), and
provide it with your name, address, telephone number, Social Security
or Tax Identification Number, the Zeta 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 Dealer to wire the
specified amount, together with your assigned account number, to the Custodian:
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PNC Bank, National Association, Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Zeta 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 Zeta Shares may redeem Zeta 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 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
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dividends on those shares will be paid with the redemption proceeds.
An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Zeta Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Zeta Family c/o PFPC, P.O. Box
8950, Wilmington, Delaware 19899. It is recommended that such request be sent by
registered or certified mail if share certificates accompany the request.
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, each
signature must be guaranteed. A signature guarantee verifies the authenticity of
your signature and the Guarantor must be a participant in an STAMP Program (a
Securities Transfer Agents Medallion Program). You may call the Transfer Agent
at (800) 533-7719 to determine whether the entity that will guarantee the
signature is an eligible Guarantor. Guarantees must be signed by an authorized
signatory of the bank, trust company or member firm and "Signature Guaranteed"
must appear with the signature.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE TO
REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800)447-7719 (in Delaware call collect
(302)791-1153). 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 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
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<PAGE>
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. 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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should complete
specimen signature cards, and then forward such signature cards to PFPC. PFPC
will then arrange for the checks to be honored by PNC Bank. Investors who own
Shares through an Account should contact their brokers for signature cards.
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<PAGE>
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 REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Zeta 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and once as of 4:00 p.m. Eastern Time on
each weekday with the exception of those holidays on which either the NYSE or
the FRB is closed. Currently, the NYSE IS closed on the customary national
business holidays of New Year's Day, Martin Luther King,
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<PAGE>
Jr. Day, President's 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)), 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 each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Zeta Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for investment companies, and has its
principal offices at Bellevue Park Corporate Center, 400 Bellevue Parkway,
Wilmington, Delaware 19809. PNC Bank serves as the sub-ADVISER for each of the
Portfolios other than the New York Municipal Money Market
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<PAGE>
Portfolio, which has no sub-ADVISER. PNC Bank and its predecessors have been
in the business of managing the investments of fiduciary and other accounts in
the Philadelphia area since 1847. PNC Bank 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
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101, is a wholly owned
subsidiary of PNC Bancorp, Inc. PNC Bancorp, Inc. is a bank holding company and
a wholly owned subsidiary of PNC Bank Corp, a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-advisor to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-advisor, provides research and credit
analysis and provides PIMC with certain other services. In entering into
Portfolio transactions for a Portfolio with a broker, PIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees have no
effect on the advisory fees payable by such Portfolio to PIMC. In addition, PIMC
may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its
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<PAGE>
advisory agreements with the Fund relating to any Portfolio. Any such
arrangement would have no effect on the advisory fees payable by each Portfolio
to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, .05% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and 0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .21%, .12% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and generally assists such
Portfolios in all aspects of their administration and operation, including
matters relating to the maintenance of financial records and account. PFPC will
be entitled to an administration fee, computed daily and payable monthly at a
rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Financial Corp, serves as the Fund's
transfer agent and dividend disbursing agent. PFPC may enter into shareholder
servicing agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These expenses include, but
are not limited to, organizational costs, fees paid to the investment adviser,
fees and expenses of officers and directors who are not affiliated with the
Portfolio's investment adviser or Distributor, taxes, interest,
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legal fees, custodian fees, auditing fees, brokerage fees and commissions,
certain of the fees and expenses of registering and qualifying the Portfolio and
its shares for distribution under Federal and state securities laws, expenses of
preparing prospectuses and statements of additional information and of printing
and distributing prospectuses and statements of additional information annually
to existing shareholders that are not attributable to a particular class, the
expense of reports to shareholders, shareholders' meetings and proxy
solicitations that are not attributable to a particular class, fidelity bond and
directors and officers liability insurance premiums, the expense of using
independent pricing services and other expenses which are not expressly assumed
by the Portfolio's investment adviser under its advisory agreement with the
Portfolio. Any general expenses of the Fund that are not readily identifiable as
belonging to a particular investment portfolio of the Fund will be allocated
among all investment portfolios of the Fund based upon the relative net assets
of the investment portfolios at the time such expenses were accrued. In
addition, distribution expenses, transfer agency expenses, expenses of
preparing, printing and distributing prospectuses, statements of additional
information, proxy statements and reports to shareholders, and registration fees
identified as belonging to a particular class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc., with an address at 466
Lexington Avenue, New York, New York, acts as distributor of the Shares of each
of the Zeta Classes of the Fund pursuant to separate distribution contracts
(collectively, the "Distribution Contracts") with the Fund on behalf of each of
the Zeta Classes.
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The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Zeta Class a distribution fee, which is accrued daily and paid monthly,
of up to .65% on an annualized basis of the average daily net assets of the
relevant Zeta Class. The actual amount of such compensation is agreed upon from
time to time by the Fund's Board of Directors and the Distributor. Under the
Distribution Contracts the Distributor has agreed to accept compensation for its
services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Zeta Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Zeta Class the
fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor may incur in fulfilling its obligations under a Plan on behalf of
the relevant Zeta Class. Thus, under each of the Plans, even if the
Distributor's actual expenses exceed the fee payable to the Distributor
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If the Distributor's actual expenses are less than the fee it
receives, the Distributor will retain the full amount of the fee.
The Plans in effect with respect to the Zeta Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have
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been approved by the sole shareholder of each such Class. Under the terms of
Rule 12b-1, each will remain in effect only if approved at least annually by the
Fund's Board of Directors, including those directors who are not "interested
persons" of the Fund as that term is defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related thereto ("12b-1 Directors"). Each of the Plans may be
terminated at any time by vote of a majority of the 12b-1 Directors or by vote
of a majority of the Fund's outstanding voting securities of the relevant Zeta
Class. The fee set forth above will be paid by the Fund on behalf of the
relevant Zeta Class to the Distributor unless and until the relevant Plan is
terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Zeta Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended. So long as a Portfolio qualifies for this tax treatment, such Portfolio
will be relieved of Federal income tax on amounts distributed to shareholders,
but shareholders, unless otherwise exempt, will pay income or capital gains
taxes on amounts so distributed (except distributions that constitute "exempt
interest dividends" or that are treated as a return of capital) regardless of
whether such distributions are
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paid in cash or reinvested in additional shares. None of the Portfolios intends
to make distributions that will be eligible for the corporate dividends received
deduction.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986, will generally constitute an item of tax preference for corporate and
noncorporate taxpayers in determining Federal alternative minimum tax liability.
The New York Municipal Money Market Portfolio may invest up to 20% of its net
assets in such private activity bonds and the Municipal Money Market Portfolio
may invest up to 100% of its net assets in such private activity bonds, although
the Municipal Money Market Portfolio does not presently intend to do so.
Secondly, tax-exempt interest and "exempt interest dividends" derived from all
Municipal Obligations must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustment for Federal alternative
minimum tax purposes. Investors should be aware of the possibility of state and
local alternative minimum or minimum income tax liability, in addition to
Federal alternative minimum tax. Shareholders who are recipients of Social
Security Act or Railroad Retirement Act benefits should further note that
tax-exempt interest and "exempt interest dividends" derived from all types of
Municipal Obligations will be taken into account in determining the taxability
of their benefit payments. Exempt interest dividends derived from interest on
New York Municipal Obligations will also
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be exempt from New York State and New York City personal income (but not
corporate franchise) taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually the percentages of its
net investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day. In addition, the New York Municipal Money
Market Portfolio will determine annually the percentage amounts exempt from New
York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. The exclusion or exemption of interest income for Federal
income tax purposes, or New York State or New York City personal income tax
purposes, in most cases does not result in an exemption under the tax laws of
any other state or local authority. Investors who are subject to tax in other
states or localities should consult their own tax advisers about the taxation of
dividends and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and individual retirement
accounts since such plans and accounts are generally tax-exempt and, therefore,
not only would not gain any additional benefit from the Portfolios' dividends
being tax-exempt but also such dividends would be taxable when distributed to
the beneficiary.
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Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income tax
consequences described above.
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 to them.
THIS PROSPECTUS AND THE STATEMENT OF ADDITIONAL INFORMATION
INCORPORATED HEREIN RELATE PRIMARILY TO THE ZETA CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE ZETA 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
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Prospectus, Shares of the Fund will be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of 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.
The Fund will issue share certificates for any of the Zeta
Shares only upon the written request of a shareholder sent to PFPC.
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) 447-1139 (in Delaware call
collect (302) 791-1149).
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ZETA FAMILY MONEY MARKET PORTFOLIO, MUNICIPAL MONEY MARKET
PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO (INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.) STATEMENT
OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Zeta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Zeta Family 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 2
Investment Objectives and Policies ............... 2 6
Directors and Officers ........................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements ......................... 35 36
Portfolio Transactions ........................... 40 N/A
Purchase and Redemption Information .............. 41 29
Valuation of Shares .............................. 42 35
Taxes ............................................ 44 41
Description of Shares ............................ 49 44
Additional Information Concerning Fund
Shares ......................................... 51 -1
Miscellaneous .................................... 52 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 four classes of shares (the "Bedford Classes") representing
interests in four investment portfolios (the "Portfolios") of the Fund: the
Money Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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<PAGE>
SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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<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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
8
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
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contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the city's
general obligation bonds to "Baa-1" from "A". Moody's expressed doubts about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based upon revenues of
$29.508 billion, but budget gaps of $1.6 billion, $1.7 billion and $2.3 billion
in fiscal years 1994, 1995, and 1996, respectively. The 1993-1996 Financial Plan
proposes to eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
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upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for fiscal
year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
21
<PAGE>
On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
22
<PAGE>
Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
23
<PAGE>
borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio only, except
for reverse repurchase agreements) and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with
respect to the Municipal Money Market Portfolio, in amounts not in
excess of the lesser of the dollar
24
<PAGE>
amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
(7) purchase or sell commodities or commodity
contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that a Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
25
<PAGE>
(10) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(11) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
26
<PAGE>
of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the Municipal
Money Market Portfolio has more than 5% of its total assets invested
in instruments issued by or subject to Puts from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Municipal Money Market Portfolio's total assets.
A "Put" means a right to sell a specified underlying instrument within
a specified period of time and at a specified exercise price that may
be sold, transferred or assigned only with the underlying instrument.
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.
27
<PAGE>
2. The Money Market Portfolio will limit its
purchases of Second Tier Securities, which are eligible securities
other than First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its
purchases of Second Tier Securities of one issuer to the greater of 1%
of its total assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations. There is no limit on the
amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is
permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10%
of the Portfolio's annual gross income (without offset for realized
capital gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies.
28
<PAGE>
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300 percent for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in
excess of 10% of the value of a Portfolio's total assets at the time of
such borrowing; or purchase portfolio securities while borrowings in
excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
(2) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
29
<PAGE>
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger, consolidation,
acquisition or reorganization of all the securities or assets of such
an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will
not purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
30
<PAGE>
specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
31
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.; Since
1990, Chief Executive
Officer and since 1991,
Secretary, Counsellors
Securities Inc.; Officer
of various investment
companies advised by
Warburg, Pincus
Counsellors, Inc.
Robert Sablowsky - 58** Director Since 1985, Executive
14 Wall Street Vice President of
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc. and Gruntal
Financial Corp.
Francis J. McKay - 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.), Mart PMM, Inc. (formerly
Pennsauken Merchandise Mart, Inc.)
(shopping centers); and Since
1975, Director and Executive Vice
President, Cellucap Mfg. Co., Inc.
(manufacturer of disposable
headwear).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Julian A. Brodsky - 63 Director Director and Vice
1234 Market Street Chairman, Comcast
16th Floor Corporation; Director,
Philadelphia, PA 19107-3723 Comcast Cablevision of Philadelphia
(cable television and
communications) and Nextel
(wireless communications).
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 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
103 Bellevue Parkway Center; Vice President
Wilmington, DE 19809 and Trustee, Pennsylvania School
for the Deaf; Trustee,
Immaculata College;
Vice President and
Treasurer of various
investment companies
advised by PNC
Institutional Management
Corporation.
Morgan R. Jones - 57 Secretary Partner, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Pennsylvania (formerly,
Chairman and Chief
Executive Officer);
Director, Rocking Horse Child Care
Centers of America, Inc.
</TABLE>
33
<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 Gruntal & Co.,
Inc., a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as
that term is defined in the 1940 Act) of the Fund $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,
34
<PAGE>
National Association ("PNC Bank"), the sub-advisor to all Portfolios other than
the New York Municipal Money Market Portfolio, which has no sub-advisor, and the
Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal Money
Market and New York Municipal Money Market Portfolios and the Fund's transfer
and dividend disbursing agent, and Counsellors Securities Inc. (the
"Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES WITH RESPECT TO THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017 OF ADVISORY FEES WITH RESPECT TO
THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $2,274,697 in advisory fees with respect to
the Money Market Portfolio, $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio, $780,122 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $187,660 with respect to the New York Municipal
Money Market Portfolio. During the same year, PIMC waived $2,589,882 of advisory
fees with respect to the Money Market Portfolio, $1,041,321 of advisory fees
with respect to the
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Municipal Money Market Portfolio, $398,363 of advisory fees with respect to the
Government Obligations 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, $7,733 in advisory fees with respect to the
Municipal Money Market Portfolio, $580,435 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $193,386 with respect to the New York Municipal
Money Market Portfolio under its Advisory Contract with the Fund. During the
same year, PIMC waived $2,255,986 of advisory fees with respect to the Money
Market Portfolio, $1,091,646 of advisory fees with respect to the Municipal
Money Market Portfolio, $461,938 of advisory fees with respect to the Government
Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional
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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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by Shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data,
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clerical, accounting, and bookkeeping services, and certain other services
required by the Fund. PFPC has also agreed to prepare and file various reports
with the appropriate regulatory agencies, and prepare materials required by the
SEC or any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Zeta Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Zeta Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Zeta 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
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$15.00 per account in each Portfolio for orders which are placed via third
parties and relayed electronically to PFPC, and at an annual rate of $17.00 per
account in each Portfolio for all other orders, exclusive of out-of-pocket
expenses and also receives a fee for each redemption check cleared and
reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Zeta Classes, (collectively, the "Distribution Contracts") and separate
Plans of Distribution for each of the Zeta Classes (collectively, the "Plans"),
all of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute
shares of each of the Zeta Classes. As compensation for its distribution
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Zeta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Zeta Class of
the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios was approved by the sole
shareholder of each Zeta Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
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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 Zeta 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 Zeta 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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
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referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
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computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE IS closed on WEEKENDS AND 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.
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
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The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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.
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Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a widely-recognized independent
service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
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Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
45
<PAGE>
In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign
46
<PAGE>
corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
47
<PAGE>
While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each
48
<PAGE>
Portfolio intends to distribute all of its taxable income currently, no
Portfolio anticipates incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 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),
49
<PAGE>
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, 50
million shares are classified as Class X Common Stock (U.S. Core Equity), 50
million shares are classified as Class Y Common Stock (U.S. Core Fixed Income),
50 million shares are classified as Class Z Common Stock (Global Fixed Income),
50 million shares are classified as Class AA Common Stock (Municipal Bond), 50
million shares are classified as Class BB Common Stock (BEA Balanced), 50
million shares are classified as Class CC Common Stock (Short Duration), 100
million shares are classified as Class DD ^ COMMON STOCK, 100 million shares are
classified as Class EE COMMON STOCK, 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 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
50
<PAGE>
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 Classes Zeta 1,
Zeta 2, Zeta 3 and Zeta 4 Common Stock constitute the Zeta Family Classes. Under
the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN
separate "families": the RBB Family the 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 Cash Preservation represents interest in the Money
Market, Municipal Money Market; the Bedford Family represents interests in the
Money Market, Municipal Money Market, Government Obligations 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 INTERESTS IN ONE NON-MONEY
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.
51
<PAGE>
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 1100 Philadelphia National Bank Building, Broad and Chestnut Streets,
Philadelphia, Pennsylvania 19107, serves as counsel to the Fund's independent
directors.
52
<PAGE>
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 the Statements of
Additional Information of the Fund relating to the RBB Family, the Cash
Preservation Classes, the Sansom Street Family, the Bedford Family and the
Bradford Family which have been audited by Coopers & Lybrand L.L.P. as set forth
in their reports, which also appear in the Statements of Additional Information
of the Fund relating to the RBB Family, the Cash Preservation Classes, the
Sansom Street Family, the Bedford Family and the Bradford Family, are
incorporated herein and made a part hereof in reliance upon the reports 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.
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
Portfolio Augustine W. Pettus Trust
(Class F) 827 Winding Path Lane
St. Louis, MO 63021-6635
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
SEYMOUR Fein 88.6
P.O. Box 486
Tremont Post Office
Bronx, NY 10457-0486
CASH Preservation Money Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. Haugh Caring TR DTD 8/12/91 15.3
40 Plaza Square
Apt. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Wasner & Co. 16.6
Portfolio (Class I) FAO Paine Webber and Managed 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 MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
BEA Emerging Markets Wachovia Bank North Carolina Trust for Carolina 15.7
Equity Portfolio Power & Light Co. Supplemental Retirement Trust
(Class V) 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
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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 Income Portfolio New England UFCW & Employers' Pension 24.5
(Class Y) Fund Board of Trustees
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
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE
BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
60
<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.
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.
A-1
<PAGE>
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
<PAGE>
PROSPECTUS
THE THETA FAMILY
MONEY MARKET PORTFOLIO
- ----------------------------
MUNICIPAL
MONEY MARKET PORTFOLIO
- ----------------------------
GOVERNMENT OBLIGATIONS
MONEY MARKET PORTFOLIO
- ----------------------------
NEW YORK MUNICIPAL
MONEY MARKET PORTFOLIO
December 3, 1996
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR IN THE FUND'S STATEMENT OF
ADDITIONAL INFORMATION INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH THE
OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
TABLE OF CONTENTS
Page
----
INTRODUCTION ........................................................... 2
FINANCIAL HIGHLIGHTS ................................................... 6
INVESTMENT OBJECTIVES AND POLICIES ..................................... 6
PURCHASE AND REDEMPTION OF SHARES ...................................... 28
NET ASSET VALUE ........................................................ 34
MANAGEMENT ............................................................. 35
DISTRIBUTION OF SHARES ................................................. 38
DIVIDENDS AND DISTRIBUTIONS ............................................ 40
TAXES .................................................................. 40
DESCRIPTION OF SHARES .................................................. 43
OTHER INFORMATION ...................................................... 44
INVESTMENT ADVISER
PNC Institutional Management Corporation
Wilmington, Delaware
CUSTODIAN
PNC Bank, National Association
Philadelphia, Pennsylvania
ADMINISTRATOR AND TRANSFER AGENT
PFPC Inc.
Wilmington, Delaware
COUNSEL
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
<PAGE>
THE THETA FAMILY
OF
THE RBB FUND, INC.
The Theta Family consists of four classes of common stock of
The RBB Fund, Inc. (the "Fund"), an open-end management investment company. The
shares of such classes (collectively, the "Theta Shares" or "Shares") offered by
this Prospectus represent interests in a taxable money market portfolio, a
municipal money market portfolio, a U.S. Government obligations money market
portfolio and a New York municipal money market portfolio (collectively, the
"Portfolios"). The investment objectives of each investment portfolio described
in this Prospectus are as follows:
MONEY MARKET PORTFOLIO--to provide as high a level of
current interest income as is consistent with maintaining liquidity and
stability of principal. It seeks to achieve such objective by investing
in a diversified portfolio of U.S. dollar-denominated money market
instruments.
MUNICIPAL MONEY MARKET PORTFOLIO--to provide as high
a level of current interest income exempt from Federal income taxes as
is consistent with maintaining liquidity and stability of principal. It
seeks to achieve such objective by investing substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations.
"Municipal Obligations" are obligations issued by or on behalf of
states, territories and possessions of the United States, the District
of Columbia and their political subdivisions, agencies,
instrumentalities and authorities. During periods of normal market
conditions, at least 80% of the net assets of the Portfolio will be
invested in Municipal Obligations, the interest on which is exempt from
the regular Federal income tax but which may constitute an item of tax
preference for purposes of the Federal alternative minimum tax.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO--to
provide as high a level of current interest income as is consistent
with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government
or its agencies or instrumentalities, and repurchase agreements
relating to such obligations.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO--to provide
as high a level of current income that is exempt from Federal, New York
State and New York City personal income taxes as is consistent with
preservation of capital and liquidity. It seeks to achieve its
objective by investing primarily in Municipal Obligations, the interest
on which is exempt from regular Federal income tax and is not an item
of tax preference for purposes of the Federal alternative minimum tax
("Tax-Exempt Interest") and is exempt from New York State and New York
City personal income taxes.
AN INVESTMENT IN THE PORTFOLIOS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT OR ANY GOVERNMENTAL AGENCY. THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIOS WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
PNC Institutional Management Corporation serves as investment
adviser for the Fund, PNC Bank, National Association ("PNC BANK") serves as
sub-ADVISER for all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-ADVISER, and serves as custodian for the Fund,
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and transfer and dividend disbursing
agent for the Fund. Counsellors Securities Inc. acts as distributor for the
Fund.
This Prospectus contains concise information that a
prospective investor needs to know before investing. Please keep it for future
reference. A Statement of Additional Information, dated 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.
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.
PROSPECTUS December 3, 1996
<PAGE>
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. Each of the four classes of the Fund's shares
(collectively, the "Theta Classes") offered by this Prospectus represents
interests in one of the following of such investment portfolios: the Money
Market Portfolio, the Municipal Money Market Portfolio, the Government
Obligations Money Market Portfolio and the New York Municipal Money Market
Portfolio. The Money Market, Municipal Money Market and Government Obligations
Money Market Portfolios are diversified investment portfolios; the New York
Municipal Money Market Portfolio is a non-diversified investment 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 MUNICIPAL MONEY MARKET PORTFOLIO'S investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and stability of principal. To
achieve this objective, the Municipal Money Market Portfolio invests
substantially all of its assets in a diversified portfolio of short-term
Municipal Obligations which meet certain ratings criteria and present minimal
credit risks. During periods of normal market conditions, at least 80% of the
net assets of the Portfolio will be invested in Municipal Obligations, the
interest on which is exempt from the regular Federal income tax but which may
constitute an item of tax preference for purposes of the Federal alternative
minimum tax.
The GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. To achieve its
objective, the Portfolio invests exclusively in short-term U.S. Treasury bills,
notes and other obligations issued or guaranteed by the U.S. Government or
2
<PAGE>
its agencies or instrumentalities, and enters into repurchase agreements
relating to such obligations.
The NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO'S investment
objective is to provide as high a level of current income that is exempt from
Federal, New York State and New York City personal income taxes as is consistent
with preservation of capital and liquidity. It seeks to achieve its objective by
investing primarily in Municipal Obligations, the interest on which is
Tax-Exempt Interest and is exempt from New York State and New York City personal
income taxes and which meet certain ratings criteria and present minimal credit
risks.
Each of the Portfolios seeks to maintain a net asset value of
$1.00 per share; however, there can be no assurance that the Portfolios 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-advisor to all Portfolios other than the New York Municipal Money Market
Portfolio, which has no sub-advisor, and serves as custodian to the Fund, and
PFPC Inc. ("PFPC") serves as administrator to the Municipal Money Market and New
York Municipal Money Market Portfolios and 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 any of the Theta
Classes through his broker or by direct purchases or redemptions. See "Purchase
and Redemption of Shares."
An investment in any of the Theta Classes is subject to
certain risks, as set forth in detail under "Investment Objectives and
Policies." Any or all of the Portfolios, 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
Theta Shares, please refer to the section of this Prospectus entitled "Purchase
and Redemption of Shares."
3
<PAGE>
Fee Table
Estimated Annual Fund Operating Expenses (Theta Classes)
After Expense Reimbursements and Waivers (2)
<TABLE>
<CAPTION>
GOVERNMENT NEW YORK
MUNICIPAL OBLIGATIONS MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Management fees (after
waivers)(1)....................... .20% .05% .30% 0%
12b-1 fees (after
waivers)(1)....................... .55 .55 .57 .51
Other Expenses (after
REIMBURSEMENTS).................. .22 .24 .105 .27
--- --- ---- ---
Total Fund Operating
Expenses (Theta
Classes) (after
WAIVERS and
reimbursements).................... .97% .84% .925% .78%
==== ==== ===== ====
<FN>
(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,
MUNICIPAL MONEY MARKET PORTFOLIO, GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO AND NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO, MANAGEMENT FEES
WOULD BE .37%, .33%, .42% AND .35%, RESPECTIVELY; 12B-1 FEES WOULD BE .55%,
.55%, .57% AND .51%, RESPECTIVELY; OTHER EXPENSES WOULD BE .22%, .24%, .11%
AND .28%, RESPECTIVELY AND TOTAL FUND OPERATING EXPENSES WOULD BE 1.14%,
1.12%, 1.10% AND 1.14%, RESPECTIVELY.
</FN>
</TABLE>
EXAMPLE
An investor would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2) redemption at the end of each
time period:
<TABLE>
<CAPTION>
1 YEAR 3 YEAR 5 YEARS 10 YEARS
------ ------ ------- --------
<S> <C> <C>
Money Market N/A*................................. $10 $31 N/A N/A
Municipal Money Market*........................... $9 $27 N/A N/A
Government Obligations
Money Market*.................................... $10 $31 N/A N/A
New York Municipal
Money Market..................................... $8 $25 N/A N/A
</TABLE>
4
<PAGE>
* Other classes of these Portfolios 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 (THETA CLASSES) 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 Theta
Classes of the Fund will bear directly or indirectly. (For more complete
descriptions of the various costs and expenses, see "Management--Investment
Adviser and Sub-Advisor" and "Distribution of Shares" below.) The expense
figures are based on estimated costs and estimated fees expected to be charged
to the Theta Classes, taking into account anticipated fee waivers and
reimbursements. The Fee Table reflects a voluntary waiver of Management fees for
each Portfolio. However, there can be no assurance that any future waivers of
Management fees will not vary from the figure reflected in the Fee Table. To the
extent that any service providers assume additional expenses of the Portfolios,
such assumption will have the effect of lowering a Portfolio's overall expense
ratio and increasing its yield to investors.
From time to time a Portfolio advertises its "yield" and
"effective yield." BOTH YIELD FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a Portfolio refers
to the income generated by an investment in a Portfolio over a seven-day period
(which period will be stated in the advertisement). This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in a
Portfolio is assumed to be reinvested. The "effective yield" will be slightly
higher than the "yield" because of the compounding effect of this assumed
reinvestment. Each of the Municipal Money Market Portfolio's and the New York
Municipal Money Market Portfolio's "tax-equivalent yield" may also be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to such Portfolio's tax-free yield. This is done by
increasing the Municipal Money Market Portfolio's yield (calculated as above) by
the amount necessary to reflect the payment of Federal income tax at a stated
tax rate and by increasing the New York Municipal Money Market Portfolio's yield
(calculated as above) by the amount
5
<PAGE>
necessary to reflect the payment of Federal, New York State and New York City
personal income taxes at stated rates.
The yield of any investment is generally a function of
portfolio quality and maturity, type of investment and operating expenses. The
yield on Shares of any of the Theta Classes 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 the Theta Classes
are not reflected in the yields of the Theta Shares, and such fees, if charged,
will reduce the actual return received by shareholders on their investments. The
yield on Shares of the Theta Classes may differ from yields on shares of other
classes of the Fund that also represent interests in the same Portfolio
depending on the allocation of expenses to each of the classes of that
Portfolio. See "Expenses."
FINANCIAL HIGHLIGHTS
NO FINANCIAL DATA IS SUPPLIED FOR THE PORTFOLIOS BECAUSE, AS
OF THE DATE OF THIS PROSPECTUS, THE PORTFOLIOS HAD NO PERFORMANCE HISTORY.
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
6
<PAGE>
of U.S. or foreign banks or savings institutions having total assets at the time
of purchase in excess of $1 billion. The Portfolio may invest substantially in
obligations of foreign banks or foreign branches of U.S. banks where the
investment adviser deems the instrument to present minimal credit risks. Such
investments may nevertheless entail risks that are different from those of
investments in domestic obligations of U.S. banks due to differences in
political, regulatory and economic systems and conditions. The Portfolio may
also make interest-bearing savings deposits in commercial and savings banks in
amounts not in excess of 5% of its total assets.
COMMERCIAL PAPER. The Portfolio may purchase commercial paper
rated (at the time of purchase) in the two highest rating categories of a
nationally recognized statistical rating organization ("NRSRO"). These rating
symbols are described in the Appendix to the Statement of Additional
Information. The Portfolio may also purchase unrated commercial paper provided
that such paper is determined to be of comparable quality by the Portfolio's
investment adviser in accordance with guidelines approved by the Fund's Board of
Directors. Commercial paper issues in which the Portfolio may invest include
securities issued by corporations without registration under the Securities Act
of 1933 (the "1933 Act") in reliance on the exemption from such registration
afforded by Section 3(a)(3) thereof, and commercial paper issued in reliance on
the so-called "private placement" exemption from registration which is afforded
by Section 4(2) of the 1933 Act ("Section 4(2) paper"). Section 4(2) paper is
restricted as to disposition under the Federal securities laws in that any
resale must similarly be made in an exempt transaction. Section 4(2) paper is
normally resold to other institutional investors through or with the assistance
of investment dealers who make a market in Section 4(2) paper, thus providing
liquidity.
Commercial paper purchased by the Portfolio may include
instruments issued by foreign issuers, such as Canadian Commercial Paper
("CCP"), which is U.S. dollar-denominated commercial paper issued by a Canadian
corporation or a Canadian counterpart of a U.S. corporation, and in Europaper,
which is U.S. dollar-denominated commercial paper of a foreign issuer, subject
to the criteria stated above for other commercial paper issuers.
VARIABLE RATE DEMAND NOTES. The Portfolio may purchase
variable rate demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustment in the
interest rate. Although the notes are not normally traded and there may be no
active secondary market in the notes, the Portfolio will be able (at any time or
during the specified periods not exceeding 397 calendar days, depending
7
<PAGE>
upon the note involved) to demand payment of the principal of a note. The notes
are not typically rated by credit rating agencies, but issuers of variable rate
demand notes must satisfy the same criteria as set forth above for issuers of
commercial paper. If an issuer of a variable rate demand note defaulted on its
payment obligation, the Portfolio might be unable to dispose of the note because
of the absence of an active secondary market. For this or other reasons, the
Portfolio might suffer a loss to the extent of the default. The Portfolio
invests in variable rate demand notes only when the Portfolio's investment
adviser deems the investment to involve minimal credit risk. The Portfolio's
investment adviser also monitors the continuing creditworthiness of issuers of
such notes to determine whether the Portfolio should continue to hold such
notes.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
securities from financial institutions subject to the seller's agreement to
repurchase them at an agreed-upon time and price ("repurchase agreements"). The
securities held subject to a repurchase agreement may have stated maturities
exceeding 397 calendar days, provided the repurchase agreement itself matures in
less than 397 calendar days. The financial institutions with whom the Portfolio
may enter into repurchase agreements will be banks which the Portfolio's
investment adviser considers creditworthy pursuant to criteria approved by the
Board of Directors and non-bank dealers of U.S. Government securities that are
listed on the Federal Reserve Bank of New York's list of reporting dealers. The
Portfolio's investment adviser will consider, among other things, whether a
repurchase obligation of a seller involves minimal credit risk to a Portfolio in
determining whether to have the Portfolio enter into a repurchase agreement. The
seller under a repurchase agreement will be 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.
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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 purpose. See "Investment
Limitations."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into
reverse repurchase agreements with respect to portfolio securities. At the time
the Portfolio enters into a reverse repurchase agreement, it will place in a
segregated custodial account with the Fund's custodian or a qualified
sub-custodian liquid assets such as U.S. Government securities or other liquid
debt securities having a value equal to or greater than the repurchase price
(including accrued interest) and will subsequently monitor the account to ensure
that such value is maintained. Reverse repurchase agreements involve the risk
that the market value of the securities sold by the Portfolio may decline below
the price of the securities the Portfolio is obligated to repurchase. Reverse
repurchase agreements are considered to be borrowings by the Portfolio under the
Investment Company Act of 1940 (the "1940 Act").
GUARANTEED INVESTMENT CONTRACTS. The Portfolio may make
investments in obligations, such as guaranteed investment contracts and similar
funding agreements (collectively "GICs"), issued by highly rated U.S. insurance
companies. A GIC is a general obligation of the issuing insurance company and
not a separate account. The Portfolio's investments in GICs are not expected to
exceed 5% of its total assets at the time of purchase absent unusual market
conditions. GIC investments are subject to the Fund's policy regarding
investment in illiquid securities.
MUNICIPAL OBLIGATIONS. In addition, the Portfolio may, when
deemed appropriate by its investment adviser in light of the Portfolio's
investment objective, invest without limitation in high quality, short-term
Municipal Obligations issued by state and local governmental issuers, the
interest on which may be taxable or tax-exempt for Federal income tax purposes,
provided that such obligations carry yields that are competitive with those of
other types of Money Market Instruments of comparable quality. For a more
complete discussion of Municipal
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Obligations, see "Investment Objectives and Policies--Municipal Money Market
Portfolio--Municipal Obligations."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer would agree to purchase at the Portfolio's
option specified Municipal Obligations at a specified price. The acquisition of
a stand-by commitment may increase the cost, and thereby reduce the yield, of
the Municipal Obligation to which such commitment relates. The Portfolio will
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes.
WHEN-ISSUED SECURITIES. The Portfolio may purchase portfolio
securities on a "when-issued" basis. When issued securities are securities
purchased for delivery beyond the normal settlement date at a stated price and
yield. The Portfolio will generally not pay for such securities or start earning
interest on them until they are received. Securities purchased on a when-issued
basis are recorded as an asset at the time the commitment is entered into and
are subject to changes in value prior to delivery based upon changes in the
general level of interest rates. The Portfolio expects that commitments to
purchase when-issued securities will not exceed 25% of the value of its total
assets absent unusual market conditions. The Portfolio does not intend to
purchase when-issued securities for speculative purposes but only in furtherance
of its investment objective.
ELIGIBLE SECURITIES. The Portfolio will only purchase
"eligible securities" that present minimal credit risks as determined by the
Portfolio's investment adviser pursuant to guidelines adopted by the Board of
Directors. Eligible securities generally include: (1) U.S. Government
securities, (2) securities that are rated at the time of purchase in the highest
rating categories by one ore 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
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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%
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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 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
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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.
MUNICIPAL MONEY MARKET PORTFOLIO
The Municipal Money Market Portfolio's investment objective is
to provide as high a level of current interest income exempt from Federal income
taxes as is consistent with maintaining liquidity and relative stability of
principal. The Municipal Money Market Portfolio invests substantially all of its
assets in a diversified portfolio of short-term Municipal Obligations, the
interest on which, in the opinion of bond counsel or counsel to the issuer, as
the case may be, is exempt from the regular Federal income tax. During periods
of normal market conditions, at least 80% of the net assets of the Municipal
Money Market Portfolio will be invested in Municipal Obligations. Municipal
Obligations include securities the interest on which is Tax-Exempt Interest,
although to the extent the Portfolio invests in certain private activity bonds
issued after August 7, 1986 ("Alternative Minimum Tax Securities"), a portion of
the interest earned by the Portfolio may constitute an item of tax preference
for purposes of the Federal alternative minimum tax ("AMT Interest").
MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations which are determined by the Portfolio's investment adviser
to present minimal credit risks and that meet certain ratings criteria pursuant
to guidelines established by the Fund's Board of Directors. The Portfolio may
also purchase Unrated Securities provided that such securities are determined to
be of comparable quality to eligible rated securities. The applicable Municipal
Obligations ratings are described in the Appendix to the Statement of Additional
Information.
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The Portfolio may hold uninvested cash reserves pending
investment during temporary defensive periods or if, in the opinion of the
Portfolio's investment adviser, suitable obligations bearing Tax-Exempt Interest
or AMT Interest are unavailable. There is no percentage limitation on the amount
of assets which may be held uninvested during temporary defensive periods.
Uninvested cash reserves will not earn income.
The two principal classifications of Municipal Obligations are
"general obligation" securities and "revenue" securities. General obligation
securities are secured by the issuer's pledge of its full faith, credit and
taxing power for the payment of principal and interest. Revenue securities are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise tax or other
specific excise tax or other specific revenue source such as the user of the
facility being financed. Revenue securities include private activity bonds 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 be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. While there may be no
active secondary market with respect to a particular variable rate demand note
purchased by a Portfolio, the Portfolio may, upon the notice specified in the
note, demand payment of the principal of the note at any time or during
specified periods not exceeding 397 calendar days, depending upon the instrument
involved. The absence of such an active secondary market, however, could make it
difficult for the Portfolio to dispose of a variable rate demand note if the
issuer defaulted on its payment obligation or during the periods that the
Portfolio is not entitled to exercise its demand rights. The Portfolio could,
for this or other
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reasons, suffer a loss to the extent of the default. The Portfolio invests in
variable rate demand notes only when the Portfolio's investment adviser deems
the investment to involve minimal credit risk. The Portfolio's investment
adviser also monitors the continuing creditworthiness of issuers of such notes
to determine whether the Portfolio should continue to hold such notes.
The Tax Reform Act of 1986 substantially revised provisions of
prior law affecting the issuance and use of proceeds of certain Municipal
Obligations. A new definition of private activity bonds applies to many types of
bonds, including those which were industrial development bonds under prior law.
Interest on private activity bonds issued after August 15, 1986 is tax-exempt
only if the bonds fall within certain defined categories of qualified private
activity bonds and meet the requirements specified in those respective
categories. In addition, interest on Alternative Minimum Tax Securities that is
received by taxpayers subject to alternative minimum tax is taxable. The Act has
generally not changed the tax treatment of bonds issued to finance governmental
operations. As used in this Prospectus, the term "private activity bonds" also
includes industrial development revenue bonds issued prior to the effective date
of the provisions of the Tax Reform Act of 1986. Investors should also be aware
of the possibility of state and local alternative minimum or minimum income tax
liability on interest from Alternative Minimum Tax Securities.
Although the Municipal Money Market Portfolio may invest more
than 25% of its net assets in (i) Municipal Obligations whose issuers are in the
same state, (ii) Municipal Obligations the interest on which is paid solely from
revenues of similar projects, and (iii) private activity bonds bearing
Tax-Exempt Interest, it does not currently intend to do so on a regular basis.
To the extent the Municipal Money Market Portfolio's assets are concentrated in
Municipal Obligations that are payable from the revenues of similar projects or
are issued by issuers located in the same state, the Portfolio will be subject
to the peculiar risks presented by the laws and economic conditions relating to
such states or projects to a greater extent than it would be if its assets were
not so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The Municipal Money Market
Portfolio may invest in tax-exempt derivative securities such as tender option
bonds, custodial receipts, participations, beneficial interests in trusts and
partnership interests. A typical tax-exempt derivative security involves the
purchase of an interest in a pool of Municipal Obligations which interest
includes a tender option, demand or other feature, allowing the Portfolio to
tender the underlying Municipal Obligation to a third party at periodic
intervals and to receive the principal
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amount thereof. In some cases, Municipal Obligations are represented by
custodial receipts evidencing rights to future principal or interest payments,
or both, on underlying municipal securities held by a custodian and such
receipts include the option to tender the underlying securities to the sponsor
(usually a bank, broker-dealer or other financial institution). Although the
Internal Revenue Service has not ruled on whether the interest received on
derivative securities in the form of participation interests or custodial
receipts is Tax-Exempt Interest, opinions relating to the validity of, and the
tax-exempt status of payments received by, the Portfolio from such derivative
securities are rendered by counsel to the respective sponsors of such
derivatives and relied upon by the Portfolio in purchasing such securities.
Neither the Portfolio nor its investment adviser will review the proceedings
relating to the creation of any tax-exempt derivative securities or the basis
for such legal opinions.
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market
Portfolio--Stand-by Commitments."
ELIGIBLE SECURITIES. The Municipal Money Market Portfolio will
only purchase "eligible securities" that present minimal credit risks as
determined by the Portfolio's investment adviser pursuant to guidelines adopted
by the Board of Directors. For a more complete description of eligible
securities, see "Investment Objectives and Policies--Money Market
Portfolio--Eligible Securities".
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE, "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES" AND "Investment Objectives and Policies--
Illiquid Securities" in the Statement of Additional Information.
The Municipal Money Market Portfolio's investment objective
and the policies described above may be changed by the Fund's Board of Directors
without the affirmative vote of the holders of a majority of the Municipal Money
Market Portfolio's outstanding shares. 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
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assurance that the investment objective of the Municipal Money Market Portfolio
will be achieved. The Municipal Money Market Portfolio may not, however, change
the following investment limitations 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 Municipal Money Market Portfolio may not:
1. Purchase the securities of any 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 the Portfolio's 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.
2. Borrow money, except from banks for temporary
purposes 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 the lesser of the dollar amounts borrowed or 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, more than 25% of the value of the total assets of the
Portfolio to be invested in the obligations of issuers in the same
industry.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest or AMT
Interest.
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So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not purchase any
Put if after the acquisition of the Put the Municipal Money Market
Portfolio has more than 5% of its total assets invested in instruments
issued by or subject to Puts from the same institution, except that the
foregoing condition shall only be applicable with respect to 75% of the
Municipal Money Market Portfolio's total assets. A "Put" means a right
to sell a specified underlying instrument within a specified period of
time and at a specified exercise price that may be sold, transferred or
assigned only with the underlying instrument.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
The Government Obligations Money Market Portfolio's investment
objective is to provide as high a level of current interest income as is
consistent with maintaining liquidity and stability of principal. It seeks to
achieve such objective by investing in short-term U.S. Treasury bills, notes and
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and entering into repurchase agreements relating to such
obligations. The types of U.S. Government obligations in which the Portfolio may
invest include a variety of U.S. Treasury obligations, which differ only in
their interest rates, maturities, and times of issuance, and obligations issued
or guaranteed by the U.S. Government or its agencies or instrumentalities,
including mortgage-related securities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association and the Export-Import Bank of the United States, are
supported by the full faith and credit of the U.S. Treasury; others, such as
those of the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the agency's obligations; still others, such as
those of the Federal Farm Credit Banks or the Federal Home Loan Mortgage
Corporation, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or
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instrumentalities if it is not obligated to do so under law. The Portfolio will
invest in the obligations of such agencies or instrumentalities only when the
investment adviser believes that the credit risk with respect thereto is
minimal.
Securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns Shares representing an interest in the Portfolio. Certain government
securities held by the Portfolio may have remaining maturities exceeding 397
calendar days if such securities provide for adjustments in their interest rates
not less frequently than every 397 calendar days and the adjustments are
sufficient to cause the securities to have market values, after adjustment,
which approximate their par values.
REPURCHASE AGREEMENTS. The Portfolio may agree to purchase
government securities from financial institutions subject to the seller's
agreement to repurchase them at an agreed-upon time and price ("repurchase
agreements"). For a description of repurchase agreements, see "Investment
Objectives and Policies--Money Market Portfolio--Repurchase Agreements."
REVERSE REPURCHASE AGREEMENTS. The Portfolio may borrow funds
by entering into reverse repurchase agreements in accordance with the investment
restrictions described below. For a description of reverse repurchase
agreements, see "Investment Objectives and Policies--Money Market
Portfolio--Reverse Repurchase Agreements." The Portfolio would consider entering
into reverse repurchase agreements to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions.
MORTGAGE-RELATED SECURITIES. Mortgage loans made by banks,
savings and loan institutions, and other lenders are often assembled into pools,
the interests in which are issued and guaranteed by an agency or instrumentality
of the U.S. Government, though not necessarily by the U.S. Government itself.
Interests in such pools are what this Prospectus calls "mortgage-related
securities."
Mortgage-related securities may include asset-backed
securities which are backed by mortgages, installment sales contracts, credit
card receivables or other assets and collateralized mortgage obligations
("CMOs") issued or guaranteed by U.S. Government agencies and instrumentalities
or issued by private companies. Purchasable mortgage-related securities also
include adjustable rate securities. The estimated life of an asset-backed
security varies with the prepayment experience with
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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.
One such type of mortgage-related security in which the
Portfolio may invest is a Government National Mortgage Association ("GNMA")
Certificate. GNMA Certificates are backed as to the timely payment of principal
and interest by the full faith and credit of the U.S. Government. Another type
is a Federal National Mortgage Association ("FNMA") Certificate. Principal and
interest payments on FNMA Certificates are guaranteed only by FNMA itself, not
by the full faith and credit of the U.S. Government. A third type of
mortgage-related security in which the Portfolio may invest is a Federal Home
Loan Mortgage Association ("FHLMC") Participation Certificate. This type of
security is guaranteed by FHLMC as to timely payment of principal and interest
but, like a FNMA security, it is not guaranteed by the full faith and credit of
the U.S. Government. For a further discussion of GNMA, FNMA and FHLMC, see
"Mortgage-Related Debt Securities" in the Statement of Additional Information.
Each of the mortgage-related securities described above is
characterized by monthly payments to the security holder, reflecting the monthly
payments made by the mortgagors of the underlying mortgage loans. The payments
to the security holders (such as the Portfolio), like the payments on the
underlying loans, represent both principal and interest. Although the underlying
mortgage loans are for specified periods of time, such as twenty or thirty
years, the borrowers can, and typically do, repay them sooner. Thus, the
security holders frequently receive prepayments of principal, in addition to the
principal which is part of the regular monthly payments. A borrower is more
likely to prepay a mortgage which bears a relatively high rate of interest. This
means that, in times of declining interest rates, some of the Portfolio's higher
yielding securities might be repaid and thereby converted to cash and the
Portfolio will be forced to accept lower interest rates when that cash is used
to purchase additional securities. The Portfolio normally will not distribute
principal payments (whether regular or prepaid) to its shareholders. Interest
received by the Portfolio will, however, be distributed to shareholders in the
form of dividends.
To compare the prepayment risk for various mortgage-related
securities, various independent mortgage-related securities dealers publish
average remaining life data using proprietary models. In making determinations
concerning average
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remaining life of mortgage-related securities for the Portfolio, the investment
adviser will rely on such data to evaluate the prepayment risk in a particular
security except to the extent such data are deemed unreasonable by the
investment adviser. The investment adviser might deem such data unreasonable if
such data appeared to present a significantly different average remaining
expected life for a security when compared to data relating to the average
remaining life of comparable securities as provided by other independent
mortgage-related securities dealers.
LENDING OF SECURITIES. The Portfolio may also lend its
portfolio securities to financial institutions in accordance with the investment
restrictions described below. Such loans would involve risks of delay in
receiving additional collateral in the event the value of the collateral
decreased below the value of the securities loaned or of delay in recovering the
securities loaned or even loss of rights in the collateral should the borrower
of the securities fail financially. However, loans will be made only to
borrowers deemed by the Portfolio's investment adviser to be of good standing
and only when, in the adviser's judgment, the income to be earned from the loans
justifies the attendant risks. Any loans of the Portfolio's securities will be
fully collateralized and marked to market daily.
SHORT SALES. The Portfolio may engage in short sales. In a
short sale, the Portfolio sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Portfolio may
engage in short sales only if at the time of the short sale it owns or has the
right to obtain, at no additional cost, an equal amount of the security being
sold short. This investment technique is known as a short sale "against the
box." The Portfolio will not engage in short sales against the box to enhance
the Portfolio's yield or to increase the Portfolio's income. The Portfolio may,
however, make a short sale against the box as a hedge. The Portfolio will engage
in short sales against the box when it believes that the price of security may
decline, causing a decline in the value of a security owned by the Portfolio (or
a security convertible or exchangeable for such security), or when the Portfolio
wants to sell the security at an attractive current price, but also wishes to
defer recognition of gain or loss for Federal income tax purposes and for
certain purposes of satisfying certain tests applicable to regulated investment
companies under the Internal Revenue Code. In a short sale, the seller does not
immediately deliver the securities sold and is said to have a short position in
those securities until delivery occurs. If the Portfolio engages in a short
sale, the collateral for the short position will be maintained by the
Portfolio's custodian or a qualified sub-custodian. While the short sale is
open, the Portfolio will maintain in a segregated account an amount of
securities equal in kind and amount to the securities sold short or securities
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convertible into or exchangeable for such equivalent securities. A more detailed
discussion of short sales is contained in the Statement of Additional
Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES SEE "INVESTMENT OBJECTIVES AND POLICIES MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES" AND "Investment Objectives and
Policies--Illiquid Securities" in the Statement of Additional Information.
The Government Obligations 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 the
Portfolio's outstanding shares. 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 Government Obligations Money Market Portfolio will be achieved. The
investment limitations summarized below may not be changed, however, without
such a vote of shareholders. (A more detailed description of the following
investment limitations is contained in the Statement of Additional Information
under "Investment Objectives and Policies.")
The Government Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300% for all borrowings of the Portfolio; or mortgage, pledge or
hypothecate its assets except in connection with any such borrowing and
in amounts not in excess of 10% of the value of the Portfolio's assets
at the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where liquidation of Portfolio
securities is deemed to be inconvenient or disadvantageous.)
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3. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral,
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts received
during the loan on account of interest on the securities loaned, may
not (together with all non-qualifying income) exceed 10% of the
Portfolio's annual gross income (without offset for realized capital
gains) unless, in the opinion of counsel to the Fund, such amounts are
qualifying income under Federal income tax provisions applicable to
regulated investment companies.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
The New York Municipal Money Market Portfolio's investment
objective is to provide as high a level of current interest income that is
exempt from Federal, New York State and New York City personal income taxes as
is consistent with preservation of capital and liquidity. During periods of
normal market conditions, at least 80% of the assets will be invested in
Municipal Obligations, the interest on which is Tax-Exempt Interest and which
meet certain ratings criteria and present minimal credit risks to the Portfolio.
Portfolio obligations held by the New York Municipal Money Market Portfolio will
have remaining maturities of 397 calendar days or less ("short-term"
obligations). Dividends paid by the Portfolio which are derived from interest
attributable to tax-exempt obligations of the State of New York and its
political subdivisions, as well as of certain other governmental issuers such as
Puerto Rico ("New York Municipal Obligations"), will be excluded from gross
income for Federal income tax purposes and exempt from New York State and New
York City personal income taxes, but will be subject to corporate franchise
taxes. Dividends derived from interest on tax-exempt obligations of other
governmental issuers will be excluded from gross income for Federal income tax
purposes, but will be subject to New York State and New York City personal
income taxes. The Fund expects that, except during temporary defensive periods
or when acceptable securities are unavailable for investment by the Fund, at
least 65% of the Fund's assets will be invested in New York Municipal
Obligations. There is no assurance that the investment objective of the New York
Municipal Money Market Portfolio will be achieved.
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MUNICIPAL OBLIGATIONS. The Portfolio invests in short-term
Municipal Obligations. For a more complete discussion of Municipal
Obligations, see "Investment Objectives and Municipal Money Market Portfolio
MUNICIPAL OBLIGATIONS."
Up to 20% of the Portfolio's assets may be invested in
Alternative Minimum Tax Securities. Investors should be aware of the possibility
of Federal, state and local alternative minimum or minimum income tax liability
on interest from Alternative Minimum Tax Securities.
Although the New York Municipal Money Market Portfolio may
invest more than 25% of its net assets in (i) Municipal Obligations the interest
on which is paid solely from revenues of similar projects, and (ii) private
activity bonds bearing Tax-Exempt Interest, it does not currently intend to do
so on a regular basis. To the extent the New York Municipal Money Market
Portfolio's assets are concentrated in Municipal Obligations that are payable
from the revenues of similar projects, the Portfolio will be subject to the
peculiar risks presented by the laws and economic conditions relating to such
states or projects to a greater extent than it would be if its assets were not
so concentrated.
TAX-EXEMPT DERIVATIVE SECURITIES. The New York Municipal Money
Market Portfolio may invest in tax-exempt derivative securities such as tender
option bonds, custodial receipts, participations, beneficial interests in trusts
and partnership interests. For a description of such securities, see "Investment
Objectives and Policies--Municipal Money Market Portfolio--Tax-Exempt Derivative
Securities."
WHEN-ISSUED SECURITIES. The Portfolio may also purchase
portfolio securities on a "when-issued" basis such as described under
"Investment Objectives and Policies--Money Market Portfolio--When-Issued
Securities."
STAND-BY COMMITMENTS. The Portfolio may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio such as
described under "Investment Objectives and Policies--Money Market Portfolio--
Stand-by Commitments."
TAXABLE INVESTMENTS. The Portfolio may for defensive or other
purposes invest in certain short-term taxable securities when the Portfolio's
investment adviser believes that it would be in the best interests of the
Portfolio's investors to do so. Taxable securities in which the Portfolio may
invest on a short-term basis are obligations of the U.S. Government, its
agencies or instrumentalities, including repurchase agreements with banks or
securities dealers involving such securities; time deposits maturing in not more
than seven days; other debt
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securities rated within the two highest ratings assigned by Moody's or S&P;
commercial paper rated in the highest grade by Moody's or S&P; and certificates
of deposit issued by United States branches of United States banks with assets
of $1 billion or more. At no time will more than 20% of the Portfolio's total
assets be invested in taxable short-term securities unless the Portfolio's
investment adviser has determined to temporarily adopt a defensive investment
policy in the face of an anticipated softening in the market for Municipal
Obligations in general.
ELIGIBLE SECURITIES. The New York Municipal Money Market
Portfolio will only purchase "eligible securities". For a more complete
description of eligible securities, see "Investment OBJECTIVES AND
POLICIES--MONEY MARKET PORTFOLIO--ELIGIBLE SECURITIES" AND "INVESTMENT
Objectives and Policies" in the Statement of Additional Information.
SPECIAL CONSIDERATIONS. As a non-diversified investment
company, the Portfolio may invest a greater proportion of its assets in the
obligations of a smaller number of issuers relative to a diversified portfolio.
As a result, the value of a non-diversified investment portfolio will fluctuate
to a greater degree upon changes in the value of each underlying security. In
the opinion of the Portfolio's investment adviser, any risk to the Portfolio
should be limited by its intention to continue to conduct its operations so as
to qualify as a "regulated investment company" for purposes of the Internal
Revenue Code of 1986, as amended, and by its policies restricting investments to
obligations with short-term maturities and obligations which qualify as eligible
securities. In order to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended, the Portfolio will not purchase the
securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee.
The Portfolio's ability to meet its investment objective is
dependent upon the ability of issuers of New York
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Municipal Obligations to meet their continuing obligations for the payment of
principal and interest on their securities. New York State and New York City
face long-term worsening economic problems which could seriously affect their
ability and that of other issuers of New York Municipal Obligations to meet
their financial obligations.
Investors should be aware that certain substantial issuers of
New York Municipal Obligations (including issuers whose obligations may be
acquired by the Portfolio) have experienced serious financial difficulties in
recent years. These difficulties have at times jeopardized the credit standing
and impaired the borrowing abilities of all New York issuers and have generally
contributed to higher interest costs for their borrowing and lower market prices
for their outstanding debt obligations. In recent years, several different
issues of municipal securities of New York State and its agencies and
instrumentalities and of New York City have been downgraded by Standard & Poor's
Corporation ("S&P") and Moody's Investor Service, Inc. ("Moody's "). On the
other hand, strong demand for New York Municipal Obligations has more recently
had the effect of permitting New York Municipal Obligations to be issued with
yields relatively lower, and after issuance to trade in the market at prices
relatively higher, than comparably rated municipal obligations issued by other
jurisdictions. A recurrence of the financial difficulties previously experienced
by such issuers could result in defaults or declines in the market values of
their existing obligations and, possibly, in the obligations of other issuers of
New York Municipal obligations. Although no issuers of New York Municipal
obligations were as of the date of this Prospectus in default with respect to
the payment of their debt obligations, the occurrence of any such default could
adversely affect the shares. Some of the significant financial considerations
relating to the Fund's investments in New York obligations are summarized in the
Statement of Additional Information.
ILLIQUID SECURITIES. The Portfolio will not invest more than
10% of its net assets in illiquid securities. FOR A MORE COMPLETE DESCRIPTION
OF ILLIQUID SECURITIES, SEE "INVESTMENT OBJECTIVES AND POLICIES--MONEY MARKET
PORTFOLIO--ILLIQUID SECURITIES" AND "Investment Objectives and Policies--
Illiquid Securities" in the Statement of Additional Information.
The New York Municipal Money Market Portfolio's investment
objective and the policies described above may be changed by the Fund's Board of
Directors without the affirmative vote of the holders of a majority of the New
York Municipal Money Market Portfolio's outstanding shares. Such changes may
result in the Portfolio having investment objectives which differ from those an
investor may have considered at the time of investment.
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<PAGE>
There is no assurance that the investment objective of the New York Municipal
Money Market will be achieved. The New York Municipal Money Market Portfolio may
not, however, change the following investment limitations 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 New York Municipal Money Market Portfolio may not:
1. Borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's 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.)
2. Purchase any securities which would cause 25% or
more of the value of the Portfolio's total assets at the time of
purchase to be invested in the securities of issuers conducting their
principal business activities in the same industry; provided that this
limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for
the purpose of this limitation only, private activity bonds that are
considered to be issued by non-governmental users (see the second
investment limitation above) shall not be deemed to be Municipal
Obligations.
In addition, without the affirmative vote of the holders of a
majority of the Portfolio's outstanding shares, the Portfolio may not change its
policy of investing during normal market conditions at least 80% of its net
assets in obligations the interest on which is Tax-Exempt Interest.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments
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<PAGE>
in addition to the fundamental investment limitations described above. This
limitation may be changed without a vote of shareholders of the New York
Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
specified exercise price that may be sold, transferred or assigned only
with the underlying instrument.
Opinions relating to the validity of Municipal Obligations and
to the exemption of interest thereon from Federal income tax (and, with respect
to New York Municipal Obligations, to the exemption of interest thereon from New
York State and New York City personal income tax) are rendered by bond counsel
to the respective issuers at the time of issuance. Neither the Fund nor its
investment adviser will review the proceedings relating to the issuance of
Municipal Obligations or the basis for such opinions.
PURCHASE AND REDEMPTION OF SHARES
PURCHASE PROCEDURES
GENERAL. Theta Shares are sold without a sales load on a
continuous basis by the Distributor. The Distributor is located at 466 Lexington
Avenue, New York, New York. Investors may purchase Theta Shares through an
account maintained by the investor with his brokerage firm (the "Account") and
may also purchase Shares directly by mail or bank wire. The minimum initial
investment is $1,000, and the minimum subsequent investment is $100. The Fund in
its sole discretion may accept or reject any order for purchases of Theta
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
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which payment has been converted into Federal Funds by 12:00 noon Eastern Time,
will be executed as of 12:00 noon that Business Day. Orders which are
accompanied by Federal Funds and received by the Fund after 12:00 noon Eastern
Time but prior to 4:00 p.m. Eastern Time, and orders as to which payment has
been converted into Federal Funds after 12:00 noon Eastern Time but prior to
4:00 p.m. Eastern Time on any Business Day of the Fund, will be executed as of
4:00 p.m. Eastern Time on that Business Day, but will not be entitled to receive
dividends declared on such Business Day. Orders which are accompanied by Federal
Funds and received by the Fund as of 4:00 p.m. Eastern Time or later, and orders
as to which payment has been converted to Federal Funds as of 4:00 p.m. Eastern
Time or later on a Business Day will be processed as of 12:00 noon Eastern Time
on the following Business Day. A "Business Day" is any day that both the New
York Stock Exchange (the "NYSE") and the Federal Reserve Bank of Philadelphia
(the "FRB") are open.
PURCHASES THROUGH AN ACCOUNT. Purchases of Shares may be
effected through an investor's Account with his broker through procedures
established in connection with the requirements of Accounts at such broker. In
such event, beneficial ownership of Theta 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 Theta 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.
A broker may offer investors maintaining Accounts the ability
to purchase Theta Shares under an automatic purchase program (a "Purchase
Program") established by a participating broker. An investor who participates in
a Purchase Program will have his "free-credit" cash balances in his Account
automatically invested in Shares of the Theta Class designated by the investor
as the "Primary Theta Class" for his Purchase Program. The frequency of
investments and the minimum investment requirement will be established by the
broker and the Fund. In addition, the broker may require a minimum amount of
cash and/or securities to be deposited in an Account for participants in its
Purchase Program. The description of the particular broker's Purchase
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<PAGE>
Program should be read for details, and any inquiries concerning an Account
under a Purchase Program should be directed to the broker. A participant in a
Purchase Program may change the designation of the Primary Theta Class at any
time by so instructing his broker.
If a broker makes special arrangements under which orders for
Theta 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.
DIRECT PURCHASES. An investor may also make direct investments
at any time in any Theta Class he selects through any broker that has entered
into a dealer agreement with the Distributor (a "Dealer"). An investor may make
an initial investment in any of the Theta Classes by mail by fully completing
and signing an application obtained from a Dealer (the "Application"),
specifying the Portfolio in which he wishes to invest, and mailing it, together
with a check payable to "The Theta Family" c/o PFPC, P.O. Box 8950, Wilmington,
Delaware 19899. The check must specify the name of the Portfolio for which
shares are being purchased. An Application will be returned to the investor
unless it contains the name of the Dealer from whom it was obtained. Subsequent
purchases may be made through a Dealer or 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 in any of the Theta Classes by having his bank or
Dealer wire Federal Funds to the Fund's Custodian, PNC Bank, National
Association. An investor's bank or Dealer 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) 447-1139 (in Delaware call collect (302) 791-1149), and
provide it with your name, address, telephone number, Social Security
or Tax Identification Number, the Theta 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.)
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B. Instruct your bank or Dealer to wire the specified
amount, together with your assigned account number, to the Custodian:
PNC Bank, N.A., Philadelphia, Pa.
ABA-0310-0005-3.
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.
RETIREMENT PLANS. Theta 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 Theta Shares may redeem Theta 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 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.
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<PAGE>
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.
An investor's brokerage firm will also redeem each day a
sufficient number of Shares of the Primary Theta Class to cover debit balances
created by transactions in the Account or instructions for cash disbursements.
Shares will be redeemed on the same day that a transaction occurs that results
in such a debit balance or charge.
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. A direct investor may
redeem any number of Shares by sending a written request, together with any
share certificates issued to the investor, to The Alpha Family c/o PFPC, P.O.
Box 8950, Wilmington, Delaware 19899. It is recommended that such request be
sent by registered or certified mail if share certificates accompany the
request. 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, each signature must be guaranteed. A signature guarantee verifies the
authenticity of your signature and the guarantor must be a participant in a
STAMP Program (a Securities Transfer Agents Medallion Program). You may call the
Transfer Agent at (800) 533-7719 to determine whether the entity that will
guarantee the signature is on eligible guarantor. Guarantees must be signed by
an authorized signatory of the bank, trust company or member firm and "Signature
Guaranteed" must appear with the signature.
Direct 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. SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE TO
REDEEM SHARES BY TELEPHONE BECAUSE THE CERTIFICATES MUST ACCOMPANY THE
REDEMPTION REQUEST. An investor may obtain a Telephone Authorization from PFPC
or by calling Account Services at (800)447-7719 (in Delaware call collect
(302)791-1153). 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 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
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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.
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 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.
SHAREHOLDERS HOLDING SHARE CERTIFICATES ARE NOT ELIGIBLE FOR THIS CHECK WRITING
PRIVILEGE BECAUSE SHARE CERTIFICATES MUST ACCOMPANY ALL REDEMPTION REQUESTS.
These checks may be made payable to the order of anyone. The minimum amount of a
check is $100; however, a broker/dealer may establish a higher minimum. An
investor wishing to use this check writing redemption procedure should complete
specimen signature cards, and then forward such
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<PAGE>
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's Bank 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 REDEMPTION INFORMATION. The Fund ordinarily will
make payment for all Shares redeemed within seven days after receipt by PFPC of
a redemption request in proper form. However, Shares purchased by check will not
be redeemed for a period of up to fifteen days after their purchase, pending a
determination that the check has cleared. This procedure does not apply to
Shares purchased by wire payment. During the period prior to the time Shares are
redeemed, dividends on such Shares will accrue and be payable.
The Fund imposes no charge when Shares are redeemed. The Fund
reserves the right to redeem any account in an Theta 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.
NET ASSET VALUE
The net asset value per share of each of the Portfolios for
the purpose of pricing purchase and redemption orders is determined twice each
day, once as of 12:00 noon Eastern Time and
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<PAGE>
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 the customary national business holidays of New Year's Day,
President's 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)), 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 each of the Portfolios a net
asset value of $1.00 per share for purposes of purchases and redemptions and
values its portfolio securities on the basis of the amortized cost method of
valuation described in the Statement of Additional Information under the heading
"Valuation of Shares." There can be no assurance that net asset value per share
will not vary.
With the approval of the Board of Directors, a Portfolio may
use a pricing service, bank or broker-dealer experienced in such matters to
value the Portfolio's securities. A more detailed discussion of net asset value
and security valuation is contained in the Statement of Additional Information.
MANAGEMENT
BOARD OF DIRECTORS
The business and affairs of the Fund and each investment
portfolio are managed under the direction of the Fund's Board of Directors. The
Fund currently operates or proposes to operate NINETEEN separate investment
portfolios. Each of the Theta Classes represents interests in one of the
following such investment portfolios: the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio.
INVESTMENT ADVISER AND SUB-ADVISER
PIMC, a wholly owned subsidiary of PNC Bank, serves as the
investment adviser for each of the Portfolios. PIMC was organized in 1977 by PNC
Bank to perform advisory services for
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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 each of the Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER. PNC Bank and its predecessors have
been in the business of managing the investments of fiduciary and other accounts
in the Philadelphia area since 1847. PNC Bank 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
Broad and Chestnut Streets, Philadelphia, Pennsylvania 19101, is a wholly owned
subsidiary of PNC Bancorp, Inc. PNC Bancorp, Inc. is a bank holding company and
a wholly owned subsidiary of PNC Bank Corp, a multi-bank holding company.
As investment adviser to the Portfolios, PIMC manages such
Portfolios and is responsible for all purchases and sales of portfolio
securities. PIMC also assists generally in supervising the operations of the
Portfolios, and maintains the Portfolios' financial accounts and records. PNC
Bank, as sub-ADVISER to all Portfolios other than the New York Municipal Money
Market Portfolio, which has no sub-ADVISER, provides research and credit
analysis and provides PIMC with certain other services. In entering into
Portfolio transactions for a Portfolio with a broker, PIMC may take into account
the sale by such broker of shares of the Fund, subject to the requirements of
best execution.
For the services provided to and expenses assumed by it for
the benefit of each of the Money Market and Government Obligations Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on a Portfolio's average daily net assets: .45% of the
first $250 million; .40% of the next $250 million; and .35% of net assets in
excess of $500 million.
For the services provided and expenses assumed by it with
respect to the Municipal Money Market and New York Municipal Money Market
Portfolios, PIMC is entitled to receive the following fees, computed daily and
payable monthly based on the Portfolio's average daily net assets: .35% of the
first $250 million; .30% of the next $250 million; and .25% of net assets in
excess of $500 million.
PIMC may in its discretion from time to time agree to waive
voluntarily all or any portion of its advisory fee for any Portfolio. For its
sub-advisory services, PNC Bank is entitled to receive from PIMC an amount equal
to 75% of the advisory fees paid by the Fund to PIMC with respect to any
Portfolio for which PNC Bank acts as sub-advisor. Such sub-advisory fees have no
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<PAGE>
effect on the advisory fees payable by such Portfolio to PIMC. In addition, PIMC
may from time to time enter into an agreement with one of its affiliates
pursuant to which it delegates some or all of its accounting and administrative
obligations under its advisory agreements with the Fund relating to any
Portfolio. Any such arrangement would have no effect on the advisory fees
payable by each Portfolio to PIMC.
For the Fund's fiscal year ended August 31, 1996, the Fund
paid investment advisory fees aggregating .20% of the average net assets of the
Money Market Portfolio, 05% of the average net assets of the Municipal Money
Market Portfolio, .30% of the average net assets of the Government Obligations
Money Market Portfolio and 0% of the average net assets of the New York
Municipal Money Market Portfolio. For that same year, PIMC waived approximately
.17%, .28%, .12% and .35% of the average net assets of the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio,
respectively.
ADMINISTRATOR
PFPC serves as the administrator for the Municipal Money
Market and New York Municipal Money Market Portfolios and will generally assist
such Portfolios in all aspects of their administration and operation, including
matters relating to the maintenance of financial records and accounting. PFPC
will be entitled to an administration fee, computed daily and payable monthly at
a rate of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND CUSTODIAN
PNC Bank also serves as the Fund's custodian and PFPC, an
indirect wholly owned subsidiary of PNC Bank Corp, serves as the Fund's transfer
agent and dividend disbursing agent. PFPC may enter into shareholder servicing
agreements with registered broker/dealers who have entered into dealer
agreements with the Distributor for the provision of certain shareholder support
services to customers of such broker/dealers who are shareholders of the
Portfolios. The services provided and the fees payable by the Fund for these
services are described in the Statement of Additional Information under
"Investment Advisory, Distribution and Servicing Arrangements."
EXPENSES
The expenses of each Portfolio are deducted from the total
income of such Portfolio before dividends are paid. These
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expenses include, but are not limited to, organizational costs, fees paid to the
investment adviser, fees and expenses of officers and directors who are not
affiliated with the Portfolio's investment adviser or Distributor, taxes,
interest, legal fees, custodian fees, auditing fees, brokerage fees and
commissions, certain of the fees and expenses of registering and qualifying the
Portfolio and its shares for distribution under Federal and state securities
laws, expenses of preparing prospectuses and statements of additional
information and of printing and distributing prospectuses and statements of
additional information annually to existing shareholders that are not
attributable to a particular class, the expense of reports to shareholders,
shareholders' meetings and proxy solicitations that are not attributable to a
particular class, fidelity bond and directors and officers liability insurance
premiums, the expense of using independent pricing services and other expenses
which are not expressly assumed by the Portfolio's investment adviser under its
advisory agreement with the Portfolio. Any general expenses of the Fund that are
not readily identifiable as belonging to a particular investment portfolio of
the Fund will be allocated among all investment portfolios of the Fund based
upon the relative net assets of the investment portfolios at the time such
expenses were accrued. In addition, distribution expenses, transfer agency
expenses, expenses of preparing, printing and distributing prospectuses,
statements of additional information, proxy statements and reports to
shareholders, and registration fees identified as belonging to a particular
class, are allocated to such class.
The investment adviser has agreed to reimburse each Portfolio
for the amount, if any, by which the total operating and management expenses of
such Portfolio for any fiscal year exceed the most restrictive state blue sky
expense limitation in effect from time to time, to the extent required by such
limitation.
The investment adviser may assume additional expenses of the
Portfolios from time to time. In certain circumstances, it may assume such
expenses on the condition that it is reimbursed by the Portfolios for such
amounts prior to the end of a fiscal year. In such event, the reimbursement of
such amounts will have the effect of increasing a Portfolio's expense ratio and
of decreasing yield to investors.
DISTRIBUTION OF SHARES
Counsellors Securities Inc. (the "Distributor"), a wholly
owned subsidiary of Warburg, Pincus Counsellors Inc. with an address at 466
Lexington Avenue, New York, New York, acts as
38
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distributor of the Shares of each of the Theta Classes of the Fund pursuant to
separate distribution contracts (collectively, the "Distribution Contracts")
with the Fund on behalf of each of the Theta Classes.
The Board of Directors of the Fund approved and adopted the
Distribution Contracts and separate Plans of Distribution for each of the
Classes (collectively, the "Plans") pursuant to Rule 12b-1 under the 1940 Act.
Under each of the Plans, the Distributor is entitled to receive from the
relevant Theta Class a distribution fee, which is accrued daily and paid
monthly, of up to .65% on an annualized basis of the average daily net assets of
the relevant Theta Class. The actual amount of such compensation is agreed upon
from time to time by the Fund's Board of Directors and the Distributor. Under
the Distribution Contracts the Distributor has agreed to accept compensation for
its services thereunder and under the Plans in the amount of .60% of the average
daily net assets of the relevant Class on an annualized basis in any year.
Pursuant to the conditions of an exemptive order granted by the Securities and
Exchange Commission, the Distributor has agreed to waive its fee with respect to
a Theta Class on any day to the extent necessary to assure that the fee required
to be accrued by such Class does not exceed the income of such Class on that
day. In addition, the Distributor may, in its discretion, voluntarily waive from
time to time all or any portion of its distribution fee.
Under each of the Distribution Contracts and the relevant
Plan, the Distributor may reallocate an amount up to the full fee that it
receives to financial institutions, including broker/dealers, based upon the
aggregate investment amounts maintained by and services provided to shareholders
of any relevant Class serviced by such financial institutions. The Distributor
may also reimburse broker/dealers for other expenses incurred in the promotion
of the sale of Fund shares. The Distributor and/or broker/dealers pay for the
cost of printing (excluding typesetting) and mailing to prospective investors
prospectuses and other materials relating to the Fund as well as for related
direct mail, advertising and promotional expenses.
Each of the Plans obligates the Fund, during the period it is
in effect, to accrue and pay to the Distributor on behalf of each Theta Class
the fee agreed to under the relevant Distribution Contract. None of the Plans
obligates the Fund to reimburse the Distributor for the actual expenses the
Distributor may incur in fulfilling its obligations under a Plan on behalf of
the relevant Theta Class. Thus, under each of the Plans, even if the
Distributor's actual expenses exceed the fee payable to the Distributor
thereunder at any given time, the Fund will not be obligated to pay more than
that fee. If the Distributor's actual
39
<PAGE>
expenses are less than the fee it receives, the Distributor will retain the full
amount of the fee.
The Plans in effect with respect to the Theta Classes of the
Money Market, Municipal Money Market, Government Obligations Money Market and
New York Municipal Money Market Portfolios have been approved by the sole
shareholder of each such Class. Under the terms of Rule 12b-1, each will remain
in effect only if approved at least annually by the Fund's Board of Directors,
including those directors who are not "interested persons" of the Fund as that
term is defined in the 1940 Act and who have no direct or indirect financial
interest in the operation of the Plan or in any agreements related thereto
("12b-1 Directors"). Each of the Plans may be terminated at any time by vote of
a majority of the 12b-1 Directors or by vote of a majority of the Fund's
outstanding voting securities of the relevant Theta Class. The fee set forth
above will be paid by the Fund on behalf of the relevant Theta Class to the
Distributor unless and until the relevant Plan is terminated or not renewed.
DIVIDENDS AND DISTRIBUTIONS
The Fund will distribute substantially all of the net
investment income and net realized capital gains, if any, of each of the
Portfolios to each Portfolio's shareholders. All distributions are reinvested in
the form of additional full and fractional Shares of the relevant Theta Class
unless a shareholder elects otherwise.
The net investment income (not including any net short-term
capital gains) earned by each Portfolio will be declared as a dividend on a
daily basis and paid monthly. Dividends are payable to shareholders of record
immediately prior to the determination of net asset value made as of 4:00 p.m.
Eastern Time. Net short-term capital gains, if any, will be distributed at least
annually.
TAXES
The following discussion is only a brief summary of some of
the important tax considerations generally affecting the Portfolios and their
shareholders and is not intended as a substitute for careful tax planning.
Accordingly, investors in the Portfolios should consult their tax advisers with
specific reference to their own tax situation.
Each Portfolio will elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue
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<PAGE>
Code of 1986, as amended. So long as a Portfolio qualifies for this tax
treatment, such Portfolio will be relieved of Federal income tax on amounts
distributed to shareholders, but shareholders, unless otherwise exempt, will pay
income or capital gains taxes on amounts so distributed (except distributions
that constitute "exempt interest dividends" or that are treated as a return of
capital) regardless of whether such distributions are paid in cash or reinvested
in additional shares. None of the Portfolios intends to make distributions that
will be eligible for the corporate dividends received deduction.
Distributions out of the "net capital gain" (the excess of net
long-term capital gain over net short-term capital loss), if any, of any
Portfolio will be taxed to shareholders as long-term capital gain regardless of
the length of time a shareholder has held his Shares, whether such gain was
reflected in the price paid for the Shares, or whether such gain was
attributable to securities bearing tax-exempt interest. All other distributions,
to the extent they are taxable, are taxed to shareholders as ordinary income.
The maximum marginal rate on ordinary income for individuals, trusts and estates
is generally 31%, while the maximum rate imposed on net capital gain of such
taxpayers is 28%. Corporate taxpayers are taxed at the same rates on both
ordinary income and capital gains.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio intend to pay substantially all of their
dividends as "exempt interest dividends." Investors in either of these
Portfolios should note, however, that taxpayers are required to report the
receipt of tax-exempt interest and "exempt interest dividends" in their Federal
income tax returns and that in two circumstances such amounts, while exempt from
regular Federal income tax, are subject to Federal alternative minimum tax at a
rate of 24% in the case of individuals, trusts and estates and 20% in the case
of corporate taxpayers. First, tax-exempt interest and "exempt interest
dividends" derived from certain private activity bonds issued after August 7,
1986, will generally constitute an item of tax preference for corporate and
noncorporate taxpayers in determining Federal alternative minimum tax liability.
The New York Municipal Money Market Portfolio may invest up to 20% of its net
assets in such private activity bonds and the Municipal Money Market Portfolio
may invest up to 100% of its net assets in such private activity bonds, although
the Municipal Money Market Portfolio does not presently intend to do so.
Secondly, tax-exempt interest and "exempt interest dividends" derived from all
Municipal Obligations must be taken into account by corporate taxpayers in
determining their adjusted current earnings adjustment for Federal alternative
minimum tax purposes. Investors should be aware of the possibility of state and
local alternative minimum or minimum income tax liability, in addition to
Federal alternative minimum tax. Shareholders who
41
<PAGE>
are recipients of Social Security Act or Railroad Retirement Act benefits should
further note that tax-exempt interest and "exempt interest dividends" derived
from all types of Municipal Obligations will be taken into account in
determining the taxability of their benefit payments. Exempt interest dividends
derived from interest on New York Municipal Obligations will also be exempt from
New York State and New York City personal income (but not corporate franchise)
taxes.
Each of the Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio will determine annually the percentages of its
net investment income which are exempt from the regular Federal income tax,
which constitute an item of tax preference for purposes of the Federal
alternative minimum tax, and which are fully taxable and will apply such
percentages uniformly to all distributions declared from net investment income
during that year. These percentages may differ significantly from the actual
percentages for any particular day. In addition, the New York Municipal Money
Market Portfolio will determine annually the percentage amounts exempt from New
York State and New York City personal income taxes, and the amounts, if any,
subject to such taxes. The exclusion or exemption of interest income for Federal
income tax purposes, or New York State or New York City personal income tax
purposes, in most cases does not result in an exemption under the tax laws of
any other state or local authority. Investors who are subject to tax in other
states or localities should consult their own tax advisers about the taxation of
dividends and distributions from each Portfolio by such states and localities.
The Fund will send written notices to shareholders annually
regarding the tax status of distributions made by each Portfolio. Dividends
declared in October, November or December of any year payable to shareholders of
record on a specified date in such a month will be deemed to have been received
by the shareholders on December 31, provided such dividends are paid during
January of the following year. Each Portfolio intends to make sufficient actual
or deemed distributions prior to the end of each calendar year to avoid
liability for Federal excise tax.
Shareholders who are nonresident alien individuals, foreign
trusts or estates, foreign corporations or foreign partnerships may be subject
to different U.S. Federal income tax treatment.
An investment in any one Portfolio is not intended to
constitute a balanced investment program. Shares of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio would not be suitable
for tax-exempt institutions and may not be suitable for retirement plans
qualified under Section 401 of the Code, H.R. 10 plans and
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<PAGE>
individual retirement accounts since such plans and accounts are generally
tax-exempt and, therefore, not only would not gain any additional benefit from
the Portfolios' dividends being tax-exempt but also such dividends would be
taxable when distributed to the beneficiary.
Future legislative or administrative changes or court
decisions may materially affect the tax consequences of investing in one or more
Portfolios of the Fund. Shareholders are also urged to consult their tax
advisers concerning the application of state and local income taxes to
investments in the Fund which may differ from the Federal and state income tax
consequences described above.
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 effect performance. Each class of
Common Stock of the Fund has a separate Rule 12b-1 distribution plan. Under the
Distribution Contracts entered into 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 THETA CLASSES AND DESCRIBE ONLY THE
INVESTMENT OBJECTIVE AND POLICIES, OPERATIONS, CONTRACTS AND OTHER MATTERS
RELATING TO THE THETA CLASSES.
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Each share that represents an interest in a Portfolio has an
equal proportionate interest in the assets belonging to such Portfolio with each
other share that represents an interest in such Portfolio, even where a share
has a different class designation than another share representing an interest in
that Portfolio. Shares of the Fund do not have preemptive or conversion rights.
When issued for payment as described in this Prospectus, Shares of the Fund will
be fully paid and non-assessable.
The Fund currently does not intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The law
under certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To the
extent required by law, the Fund will assist in shareholder communication in
such matters.
Holders of shares of each of the Portfolios will vote in the
aggregate and not by class on all matters, except where otherwise required by
law. Further, shareholders of all investment portfolios of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular investment portfolio. (See the
Statement of Additional Information under "Additional Information Concerning
Fund Shares" for examples when the 1940 Act requires voting by investment
portfolio or by class.) Shareholders of the Fund are entitled to one vote for
each full share held (irrespective of class or portfolio) and fractional votes
for fractional shares held. Voting rights are not cumulative and, accordingly,
the holders of more than 50% of the aggregate shares of Common Stock of the Fund
may elect all of the directors.
As of 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.
The Fund will issue share certificates for any of the Theta
Shares only upon the written request of a shareholder sent to PFPC.
44
<PAGE>
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) 447-1139 (in Delaware call
collect (302) 791-1149).
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<PAGE>
THETA FAMILY
MONEY MARKET PORTFOLIO,
MUNICIPAL MONEY MARKET PORTFOLIO,
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO AND
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
(INVESTMENT PORTFOLIOS OF THE RBB FUND, INC.)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information provides
supplementary information pertaining to shares of four classes (the "Theta
Shares") representing interests in four investment portfolios (the "Portfolios")
of The RBB Fund, Inc. (the "Fund"): the Money Market Portfolio, the Municipal
Money Market Portfolio, the Government Obligations Money Market Portfolio and
the New York Municipal Money Market Portfolio. This Statement of Additional
Information is not a prospectus, and should be read only in conjunction with the
Theta Family 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 2
Investment Objectives and Policies ....... 2 6
Directors and Officers ................... 32 N/A
Investment Advisory, Distribution and
Servicing Arrangements ................. 35 36
Portfolio Transactions ................... 40 N/A
Purchase and Redemption Information ...... 41 29
Valuation of Shares ...................... 42 35
Taxes .................................... 44 41
Description of Shares .................... 49 44
Additional Information Concerning Fund
Shares ................................. 51 --
Miscellaneous ............................ 52 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 four
classes of shares (the "Bedford Classes") representing interests in four
investment portfolios (the "Portfolios") of the Fund: the Money Market
Portfolio, the Municipal Money Market Portfolio, the Government Obligations
Money Market Portfolio and the New York Municipal Money Market Portfolio. The
Bedford Classes are 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 Portfolios.
A description of ratings of Municipal Obligations and commercial paper is set
forth in the Appendix hereto.
ADDITIONAL INFORMATION ON PORTFOLIO INVESTMENTS.
REVERSE REPURCHASE AGREEMENTS. Reverse repurchase agreements
involve the sale of securities held by a Portfolio pursuant to a Portfolio's
agreement to repurchase the securities at an agreed upon price, date and rate of
interest. Such agreements are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"), and may be entered into only for temporary
or emergency purposes. While reverse repurchase transactions are outstanding, a
Portfolio will maintain in a segregated account with the Fund's custodian or a
qualified sub-custodian, cash, U.S. Government securities or other liquid,
high-grade debt securities of an amount at least equal to the market value of
the securities, plus accrued interest, subject to the agreement.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand
instruments held by the Money Market Portfolio or the Municipal Money Market
Portfolio may have maturities of more than 397 calendar days, provided: (i) the
Portfolio is entitled to the payment of principal at any time, or during
specified intervals not exceeding 397 calendar days, upon giving the prescribed
notice (which may not exceed 30 days), and (ii) the rate of interest on such
instruments is adjusted at periodic intervals which may extend up to 397
calendar days. In determining the average weighted maturity of the Money Market,
Municipal Money Market or New York Municipal Money Market Portfolio and whether
a variable rate demand instrument has a remaining maturity of 397 calendar days
or less, each instrument will be deemed by the Portfolio to have a maturity
equal to the longer of the period remaining until
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its next interest rate adjustment or the period remaining until the principal
amount can be recovered through demand. In determining whether an unrated
variable rate demand instrument is an eligible security, the Portfolio's
investment adviser will follow guidelines adopted by the Fund's Board of
Directors.
FIRM COMMITMENTS. Firm commitments for securities include
"when issued" and delayed delivery securities purchased for delivery beyond the
normal settlement date at a stated price and yield. While the Money Market
Portfolio, Municipal Money Market Portfolio or New York Municipal Money Market
Portfolio has firm commitments outstanding, such Portfolio will maintain in a
segregated account with the Fund's custodian or a qualified sub-custodian, cash,
U.S. government securities or other liquid, high grade debt securities of an
amount at least equal to the purchase price of the securities to be purchased.
Normally, the custodian for the relevant Portfolio will set aside portfolio
securities to satisfy a purchase commitment and, in such a case, such Portfolio
may be required subsequently to place additional assets in the separate account
in order to ensure that the value of the account remains equal to the amount of
such Portfolio's commitment. It may be expected that such Portfolio's net assets
will fluctuate to a greater degree when it sets aside portfolio securities to
cover such purchase commitments than when it sets aside cash. Because such
Portfolio's liquidity and ability to manage its portfolio might be affected when
it sets aside cash or portfolio securities to cover such purchase commitments,
such Portfolio expects that commitments to purchase "when issued" securities
will not exceed 25% of the value of its total assets absent unusual market
conditions. When any of the Money Market Portfolio, Municipal Money Market
Portfolio or the New York Municipal Money Market Portfolio engages in
when-issued transactions, it relies on the seller to consummate the trade.
Failure of the seller to do so may result in such Portfolio's incurring a loss
or missing an opportunity to obtain a price considered to be advantageous.
STAND-BY COMMITMENTS. Each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may enter into stand-by commitments with respect to obligations issued by or on
behalf of states, territories, and possessions of the United States, the
District of Columbia, and their political subdivisions, agencies,
instrumentalities and authorities (collectively, "Municipal Obligations") held
in its portfolio. Under a stand-by commitment, a dealer would agree to purchase
at the Portfolio's option a specified Municipal Obligation at its amortized cost
value to the Portfolio plus accrued interest, if any. Stand-by commitments may
be exercisable by the Money Market Portfolio, Municipal Money Market Portfolio
or New York Municipal Money Market Portfolio at any time before the maturity of
the underlying Municipal Obligations and may be sold, transferred or assigned
only with the instruments involved.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio expects that stand-by
commitments will generally be available without the payment of any direct or
indirect consideration. However, if necessary or advisable, either such
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Portfolio may pay for a stand-by commitment either separately in cash or by
paying a higher price for portfolio securities which are acquired subject to the
commitment (thus reducing the yield to maturity otherwise available for the same
securities). The total amount paid in either manner for outstanding stand-by
commitments held by the Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will not exceed 1/2 of 1% of the
value of the relevant Portfolio's total assets calculated immediately after each
stand-by commitment is acquired.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio intends to enter into
stand-by commitments only with dealers, banks and broker-dealers which, in the
investment adviser's opinion, present minimal credit risks. Any such Portfolio's
reliance upon the credit of these dealers, banks and broker-dealers will be
secured by the value of the underlying Municipal Obligations that are subject to
the commitment.
The Money Market Portfolio, Municipal Money Market Portfolio
and New York Municipal Money Market Portfolio will acquire stand-by commitments
solely to facilitate portfolio liquidity and do not intend to exercise their
rights thereunder for trading purposes. The acquisition of a stand-by commitment
will not affect the valuation or assumed maturity of the underlying Municipal
Obligation which will continue to be valued in accordance with the amortized
cost method. The actual stand-by commitment will be valued at zero in
determining net asset value. Accordingly, where either such Portfolio pays
directly or indirectly for a stand-by commitment, its cost will be reflected as
an unrealized loss for the period during which the commitment is held by such
Portfolio and will be reflected in realized gain or loss when the commitment is
exercised or expires.
OBLIGATIONS OF DOMESTIC BANKS, FOREIGN BANKS AND FOREIGN
BRANCHES OF U.S. BANKS. For purposes of the Money Market Portfolio's investment
policies with respect to bank obligations, the assets of a bank or savings
institution will be deemed to include the assets of its domestic and foreign
branches. Investments in bank obligations will include obligations of domestic
branches of foreign banks and foreign branches of domestic banks. Such
investments may involve risks that are different from investments in securities
of domestic branches of U.S. banks. These risks may include future unfavorable
political and economic developments, possible withholding taxes on interest
income, seizure or nationalization of foreign deposits, currency controls,
interest limitations, or other governmental restrictions which might affect the
payment of principal or interest on the securities held in the Money Market
Portfolio. Additionally, these institutions may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting and
recordkeeping requirements than those applicable to domestic branches of U.S.
banks. The Money Market Portfolio will invest in obligations of domestic
branches of foreign banks and foreign branches of domestic banks only when its
investment adviser believes that the risks associated with such investment are
minimal.
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SHORT SALES "AGAINST THE BOX." In a short sale, the Government
Obligations Money Market Portfolio sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. The
Portfolio may engage in short sales if at the time of the short sale it owns or
has the right to obtain, at no additional cost, an equal amount of the security
being sold short. This investment technique is known as a short sale "against
the box." In a short sale, a seller does not immediately deliver the securities
sold and is said to have a short position in those securities until delivery
occurs. If the Portfolio engages in a short sale, the collateral for the short
position will be maintained by the Portfolio's custodian or a qualified
sub-custodian. While the short sale is open, the Portfolio will maintain in a
segregated account an amount of securities equal in kind and amount to the
securities sold short or securities convertible into or exchangeable for such
equivalent securities. These securities constitute the Portfolio's long
position. The Portfolio will not engage in short sales against the box for
speculative purposes. A Portfolio may, however, make a short sale as a hedge,
when it believes that the price of a security may decline, causing a decline in
the value of a security owned by the Portfolio (or a security convertible or
exchangeable for such security), or when the Portfolio wants to sell the
security at an attractive current price, but also wishes to defer recognition of
gain or loss for federal income tax purposes and for purposes of satisfying
certain tests applicable to regulated investment companies under the Internal
Revenue Code. In such case, any future losses in the Portfolio's long position
should be reduced by a gain in the short position. Conversely, any gain in the
long position should be reduced by a loss in the short position. The extent to
which such gains or losses are reduced will depend upon the amount of the
security sold short relative to the amount the Portfolio owns. There will be
certain additional transaction costs associated with short sales against the
box, but the Portfolio will endeavor to offset these costs with the income from
the investment of the cash proceeds of short sales. The dollar amount of short
sales at any time will not exceed 25% of the net assets of the Government
Obligations Money Market Portfolio, and the value of securities of any one
issuer in which the Portfolio is short will not exceed the lesser of 2% of net
assets or 2% of the securities of any class of an issuer.
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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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 a Portfolio plus interest negotiated on the basis of current short-term
rates (which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to repurchase agreements will be held
by the Fund's custodian in the Federal Reserve/Treasury book-entry system or by
another authorized securities depository. Repurchase agreements are considered
to be loans by a Portfolio under the 1940 Act.
MORTGAGE-RELATED DEBT SECURITIES. Mortgage-related debt
securities represent ownership interests in individual pools of residential
mortgage loans. These securities are designed to provide monthly payments of
interest and principal to the investor. Each mortgagor's monthly payment to his
lending institution on his residential mortgage is "passed-through" to
investors. Mortgage pools consist of whole mortgage loans or participations in
loans. The terms and characteristics of the mortgage instruments are generally
uniform within a pool but may vary among pools. Lending institutions which
originate mortgages for the pools are subject to certain standards, including
credit and underwriting criteria for individual mortgages included in the pools.
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
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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.
LENDING OF SECURITIES. With respect to loans by the Government
Obligations Money Market Portfolio of its portfolio securities as described in
the Prospectus, such Portfolio would continue to accrue interest on loaned
securities and would also earn income on loans. Any cash collateral received by
such Portfolio in connection with such loans would be invested in short-term
U.S. Government obligations. Any loan by the Government Obligations Money Market
Portfolio of its portfolio's securities will be fully collateralized and marked
to market daily.
ELIGIBLE SECURITIES. The Portfolios will only purchase
"eligible securities" that present minimal credit risks as determined by the
investment adviser pursuant to guidelines adopted by the Board of Directors.
Eligible securities generally include (1) U.S. Government securities, (2)
securities that (a) are rated (at the time of purchase) by two or more
nationally recognized statistical rating organizations ("NRSROs") in the two
highest rating categories for such securities (e.g., commercial paper rated
"A-1" or "A-2" by S&P, or rated "Prime-1" or "Prime-2" by Moody's), or (b) are
rated (at the time of purchase) by the only NRSRO rating the security in one of
its two highest rating categories for such securities; (3) short-term
obligations and long-term obligations that have remaining maturities of 397
calendar days or less, provided in each instance that such obligations have no
short-term rating and are comparable in priority and security to a class of
short-term obligations of the issuer that has been rated in accordance with
(2)(a) or (b)
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above ("comparable obligations"); (4) securities that are not rated and are
issued by an issuer that does not have comparable obligations rated by an NRSRO
("Unrated Securities"), provided that such securities are determined to be of
comparable quality to a security satisfying (2) or (3) above; and (5) long-term
obligations that have remaining maturities in excess of 397 calendar days that
are subject to a demand feature or put (such as a guarantee, a letter of credit
or similar credit enhancement) ("demand instrument") (a) that are unconditional
(readily exercisable in the event of default), provided that the demand feature
satisfies (2), (3) or (4) above, or (b) that are not unconditional, provided
that the demand feature satisfies (2), (3) or (4) above, and the demand
instrument or long-term obligations of the issuer satisfy (2) or (4) above for
long-term debt obligations. The Board of Directors will approve or ratify any
purchases by the Money Market and Government Obligations Money Market Portfolios
of securities that are rated by only one NRSRO or that are Unrated Securities.
ILLIQUID SECURITIES. None of the Portfolios may invest more
than 10% of its net assets in illiquid securities (including with respect to all
Portfolios other than the Municipal Money Market Portfolio, repurchase
agreements which have a maturity of longer than seven days), including
securities that are illiquid by virtue of the absence of a readily available
market or legal or contractual restrictions on resale. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not considered illiquid for purposes of this limitation. Each Portfolio's
investment adviser will monitor the liquidity of such restricted securities
under the supervision of the Board of Directors. With respect to the Money
Market Portfolio, the Government Obligations Money Market Portfolio, and the New
York Municipal Money Market Portfolio, repurchase agreements subject to demand
are deemed to have a maturity equal to the notice period.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because they have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and, except as to
the Municipal Money Market Portfolio, repurchase agreements having a maturity of
longer than seven days. Securities which have not been registered under the
Securities Act are referred to as private placements or restricted securities
and are purchased directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on 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.
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In recent years, however, a large institutional market has
developed for certain securities that are not registered under the Securities
Act including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand for repayment.
The fact that there are contractual or legal restrictions on resale to the
general public or to certain institutions may not be indicative of the liquidity
of such investments.
SEC Rule 144A allows for a broader institutional trading
market for securities otherwise subject to restriction on resale to the general
public. Rule 144A establishes a "safe harbor" from the registration requirements
of the Securities Act for resales of certain securities to qualified
institutional buyers. The investment adviser anticipates that the market for
certain restricted securities such as institutional commercial paper will expand
further as a result of this relatively new regulation and the development of
automated systems for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers, such as the PORTAL System sponsored
by the NASD.
Each Portfolio's investment adviser will monitor the liquidity
of restricted securities in each Portfolio under the supervision of the Board of
Directors. In reaching liquidity decisions, the investment adviser may consider,
INTER ALIA, the following factors: (1) the unregistered nature of the security;
(2) the frequency of trades and quotes for the security; (3) the number of
dealers wishing to purchase or sell the security and the number of other
potential purchasers; (4) dealer undertakings to make a market in the security
and (5) the nature of the security and the nature of the marketplace trades
(e.g., the time needed to dispose of the security, the method of soliciting
offers and the mechanics of the transfer).
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL OBLIGATIONS.
Some of the significant financial considerations relating to
the New York Municipal Money Market Portfolio's investments in New York
Municipal Obligations are summarized below. This summary information is derived
principally from official statements released prior to the date of this
Statement of Additional Information relating to issues of New York Municipal
Obligations and does not purport to be a complete description of any of the
considerations mentioned herein. The accuracy and completeness of the
information contained in such official statements has not been independently
verified.
STATE ECONOMY. New York is the second most populous state in
the nation and has a relatively high level of personal wealth. The State's
economy is diverse with a comparatively large share of the nation's finance,
insurance, transportation, communications and services employment, and a
comparatively small share of the nation's farming and mining activity. The State
has a declining proportion of its workforce engaged in manufacturing,
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and an increasing proportion engaged in service industries. New York City (the
"City"), which is the most populous city in the State and nation and is the
center of the nation's largest metropolitan area, accounts for approximately 41%
of both the State's population and personal income.
The State has historically been one of the wealthiest states
in the nation. For decades, however, the State has grown more slowly than the
nation as a whole, gradually eroding its relative economic affluence. The
recession has been more severe in the State, owing to a significant retrenchment
in the financial services industry, cutbacks in defense spending, and an
overbuilt real estate market. There can be no assurance that the State economy
will not experience worse-than-predicted results in the 1993-94 fiscal year,
with corresponding material and adverse effects on the State's projections of
receipts and disbursements.
The unemployment rate in the State dipped below the national
rate in the second half of 1981 and remained lower until 1991. The total
employment growth rate in the State has been below the national average since
1984, and in 1992 the unemployment rate rose to 8.5%. State per capita personal
income for 1992 was $23,534, which is 18.6% above the 1992 national average of
$19,841. Between 1970 and 1980, the percentage by which the State's per capita
income exceeded that of the national average fell from 19.8% to 8.1%, and the
State dropped from fifth to eleventh in the nation in terms of per capita
income. However, since 1980, the State's rate of per capita income growth was
greater than that of the nation generally and the State's rank improved to
fourth in 1990 and remained fourth in 1991 and 1992. Some analysts believe that
the decline in jobs in both the city and New York State is the result of State
and local taxation, which is among the highest in the nation, and which may
cause corporations to locate outside New York State. The current high level of
taxes limits the ability of New York State and the city to impose higher taxes
in the event of future difficulties.
STATE BUDGET. The State Constitution requires the Governor to
submit to the Legislature a balanced Executive Budget which contains a complete
plan of expenditures for the ensuing fiscal year and all moneys and revenues
estimated to be available therefor, accompanied by bills containing all proposed
appropriations or reappropriations and any new or modified revenue measures to
be enacted in connection with the Executive Budget. The entire plan constitutes
the proposed State Financial Plan for that fiscal year. The Governor submits to
the Legislature, on at least a quarterly basis, reports of actual receipts,
revenues, disbursements, expenditures, tax refunds and reimbursements, and
repayment of advances in form suitable for comparison with the State Financial
Plan, together with explanations of deviations from the State Financial Plan.
At such time, the Governor is required to submit any
amendments to the State financial plan necessitated by such deviations. The
third quarterly update to the 1992-93 State Financial Plan was submitted by the
Governor on January 19, 1993. Such revision projected that the State will
complete its 1992-93 fiscal year with a cash-basis General Fund positive margin
of $184
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million. This positive balance will be made available for income tax refunds in
the 1993-94 fiscal year.
The Governor released the recommenced Executive Budget for the
1993-94 fiscal year on January 19, 1993 and amended it on February 18, 1993. The
recommended 1993-94 State Financial Plan projected a balanced General Fund.
General Fund receipts and transfers from other funds were projected at $31.556
billion, including $184 million expected to be carried over from the 1993-94
fiscal year. Disbursements and transfers to other funds were projected at
$31.489 billion, not including a $67 million repayment to the State's Tax
Stabilization Reserve Fund.
The 1993-94 State Financial Plan formulated on April 16, 1993
(the "1993-94 State Financial Plan"), following enactment of the State's 1993-94
budget, projected General Fund receipts and transfers from other funds at
$32.367 billion and disbursements and transfers to other funds at $32.300
billion. Excess receipts of $67 million will be used for a required payment to
the State's Tax Stabilization Reserve Fund. In comparison to the recommended
1993-94 Executive Budget, the 1993-94 State budget, as enacted, reflected
increases in both receipts and disbursements in General Funds of $811 million.
There can be no assurance that the State will not face
substantial potential budget gaps in future years resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements in future
fiscal years.
The 1993-94 State Financial Plan is based on a number of
assumptions and projections. Because it is not possible to predict accurately
the occurrence of all factors that may affect the 1993-94 State Financial Plan,
actual results may differ and have differed materially in recent years, from
projections made at the outset of a fiscal year. The 1993-94 State Financial
Plan has been prepared on a cash basis and on the basis of generally accepted
accounting principles ("GAAP") using the four GAAP defined governmental fund
types: the General Fund, Special Revenue Funds, Capital Projects Funds and Debt
Service Funds.
RECENT FINANCIAL RESULTS. During its 1989-90, 1990-91 and
1991-92 fiscal years, the State incurred cash-basis operating deficits, prior to
the issuance of short-term tax and revenue anticipation notes, owing to
lower-than-projected receipts, which it believes to have been principally the
result of a significant slowdown in the New York and regional economy, and with
respect to the 1989-90 fiscal year, changes in taxpayer behavior caused by the
Federal Tax Reform Act of 1986.
The General Fund is the principal operating fund of the State.
It receives all State income that is not required by law to be deposited in
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another fund which for the State's 1993-94 fiscal year, comprises approximately
52% of total projected governmental fund receipts.
General Fund receipts, excluding transfers from other funds,
totalled $28.818 billion in the State's 1991-92 fiscal year (before repayment of
$1.081 billion of deficit notes issued in its 1990-91 fiscal year and before
issuance of $531 million in deficit notes to close the 1991-92 fiscal year
General Fund cash basis operating deficit), and $29.950 billion in the State's
1991-92 fiscal year (before repayment of $531 million in deficit notes issued to
close the State's 1991-92 fiscal year General Fund cash basis deficit). General
Fund receipts in the State's 1993-94 fiscal year are estimated in the 1993-94
State Financial Plan at $30.765 billion. Taxes account for 96% of estimated
1993-94 General Fund receipts, with the balance comprised of miscellaneous
receipts.
General Fund disbursements, exclusive of transfers to other
funds, totalled $28.058 billion in the State's 1991-92 fiscal year and $29.068
billion in the State's 1992-93 fiscal year and are estimated to total $30.346
billion in the State's 1993-94 fiscal year.
The State's financial position as shown in its Combined
Balance Sheet as of March 31, 1992 included an accumulated deficit in its
combined governmental funds of $3.315 billion represented by liabilities of
$14.166 billion and assets of $10.851 billion available to liquidate such
liabilities.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of
methods by which the State of New York may incur debt. Under the State
Constitution, the State may not, with limited exceptions for emergencies,
undertake long-term borrowing (I.E., borrowing for more than one year) unless
the borrowing is authorized in a specific amount for a single work or purpose by
the Legislature and approved by the voters. There is no limitation on the amount
of long-term debt that may be so authorized and subsequently incurred by the
State. The total amount of long-term State general obligation debt authorized
but not issued as of March 3, 1993 was approximately $2.427 billion.
The State may undertake short-term borrowings without voter
approval (i) in anticipation of the receipt of taxes and revenues, by issuing
tax and revenue anticipation notes, and (ii) in anticipation of the receipt of
proceeds form the sale of duly authorized but unissued bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State of New York also employs two other types of
long-term financing mechanisms which are State-supported but are not general
obligations
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of the State: moral obligation and lease-purchase or contractual-obligation
financing.
In 1990, as part of a State fiscal reform program, legislation
was enacted creating the New York Local Government Assistance Corporation
("LGAC"), a public benefit corporation empowered to issue long-term obligations
to fund certain payments to local governments traditionally funded through New
York State's annual seasonal borrowing. The Legislation empowered LGAC to issue
its bonds and notes in an amount not in excess of $4.7 billion (exclusive of
certain refunding bonds) plus certain other amounts. Over a period of years, the
issuance of those long-term obligations, which will be amortized over no more
than 30 years, is expected to result in eliminating the need for continuing
short-term seasonal borrowing for those purposes. The legislation also imposed a
cap on the annual seasonal borrowing of the State at $4.7 billion, less net
proceeds of bonds issued by LGAC and bonds issued to provide for capitalized
interest, except in cases where the Governor and the legislative leaders have
certified both the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth fiscal
year after the limit was first exceeded. To date, LGAC has issued its bonds to
provide net proceeds of $3.281 billion. LGAC has been authorized to issue its
bonds to provide net proceeds of up to an additional $703 million during the
State's 1993-94 fiscal year.
In April 1993, legislation was also enacted providing for
significant changes in the long-term financing practices of the State and the
Authorities.
The Legislature passed a proposed constitutional amendment
that would permit the State, without a voter referendum but within a
formula-based cap, to issue revenue bonds, which would be debt of the State
secured solely by a pledge of certain State tax receipts (including those
allocated to State funds dedicated for transportation purposes), and not by the
full faith and credit of the State. In addition, the proposed amendment would
require that State debt be incurred only for capital projects included in a
multi-year capital financing plan and would prohibit lease-purchase and
contractual-obligation financing mechanisms for State facilities. The Governor
and the Legislative leaders have indicated that public hearings will be held on
the proposed constitutional amendment. Before becoming effective, the proposed
constitutional amendment must first be passed again by the next separately
elected Legislature and then approved by the voters at a general election, so
that it could not become effective until after the general election in November
1995.
On March 26, 1990, Standard & Poor's Corporation ("S&P")
downgraded New York State's (1) general obligation bonds from "AA-" to "A" and
(2) commercial paper from "A-1+" to "A-1". Also downgraded was certain of New
York State's variously rated moral obligation, lease-purchase, guaranteed and
contractual-obligation debt, including debt issued by certain New York State
agencies. On August 27, 1990, S&P affirmed these ratings without change. On
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June 6, 1990, Moody's changed its ratings on all the State's outstanding general
obligation bonds from "A-1" to "A". On March 26, 1990, S&P changed its ratings
of all the State's outstanding general obligations bonds from "AA-" to "A". On
January 6, 1992, Moody's lowered from "A" to "Baa-1" the ratings on certain
appropriation-backed debt of the State of New York and its agencies.
Approximately two-thirds of the State's tax-supported debt is affected by
Moody's rating action. Moody's stated that the more secure general obligation,
state-guaranteed and LGAC bonds continue to be rated "A", but are placed under
review for possible downgrade over the coming months. On January 13, 1992, S&P
lowered its rating on $4.8 billion of New York State general obligation bonds to
"A-" from "A". Various agency debt, state moral obligations, contractual
obligations, lease-purchase obligations and state guarantees are also affected
by S&P's action. Additionally, under S&P's minimum-rating approach, New York
local school district debt will now carry a minimum rating of "A-" rather than
"A" and school districts currently rated "A" are placed on CreditWatch with
negative implications. In taking these rating actions, Moody's and S&P variously
cited continued economic deterioration, chronic operating deficits, mounting
GAAP fund balance deficits and the legislative stalemate in seeking permanent
and structurally sound fiscal operations. On January 15, 1992, S&P took further
action by lowering the rating on the claims-paying ability of the State of New
York Mortgage Agency Mortgage Insurance Fund to "BBB+" from "A-" following the
January 13, 1992 downgrade of New York State's general obligation bond rating to
"A-".
The State anticipates that its borrowings for capital purposes
in its 1993-94 fiscal year will consist of approximately $460 million in general
obligation bonds and $140 million in new commercial paper issuances. In
addition, it is anticipated that the State will issue $140 million in general
obligation bonds for the purpose of redeeming outstanding bond anticipation
notes. The Legislature has also authorized the issuance of up to $85 million in
certificates of participation for equipment purchases and real property purposes
during the State's 1993-94 fiscal year. The projection of the State regarding
its borrowings for the 1993-94 fiscal year may change if actual receipts fall
short of State projections or if other circumstances require.
Payments for principal and interest due on general obligation
bonds, interest due on bond anticipation notes and on tax and revenue
anticipation notes, and contractual-obligation and lease-purchase commitments
were $1.783 billion and $2.045 billion in the aggregate, for New York State's
1991-92 and 1992-93 fiscal years, respectively, and are estimated to be $2.326
billion for the State's 1993-94 fiscal year. These figures do not include
interest payable on either New York State General Obligation Refunding Bonds
issued on July 30, 1992, to the extent that such interest is to be paid from an
escrow fund established with the proceeds of such bonds or New York State's
installment payments relating to the issuance of certificates of participation.
New York State has never defaulted on any of its general
obligation indebtedness or its obligations under lease-purchase or
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contractual-obligation financing arrangements and has never been called upon to
make any direct payments pursuant to its guarantees. Three has never been a
default on any moral obligation debt of any Authority.
LITIGATION. Certain litigation pending against New York State
or its officers or employees could have a substantial or long-term adverse
effect on New York State finances. Among the more significant of these cases are
those that involve (1) the validity of agreements and treaties by which various
Indian tribes transferred title to New York State of certain land in central New
York; (2) certain aspects of New York State's Medicaid policies and its rates
and regulations, including reimbursements to providers of mandatory and optional
Medicare services; (3) contamination in the Love Canal area of Niagara Falls;
(4) an action against New York State and New York city officials alleging
inadequate shelter allowances to maintain proper housing; (5) challenges to the
practice of reimbursing certain Office of Mental Health patient care expenses
from the client's Social Security benefits; (6) alleged responsibility of New
York State officials to assist in remedying racial segregation in the City of
Yonkers; (7) a challenge to the methods by which New York State reimburses
localities for the administrative costs of food stamp programs; (8) a challenge
to New York State's possession of certain property taken pursuant to New York
State's Abandoned Property Law; (9) an action, in which New York State is a
third party defendant, for injunctive or other appropriate relief, concerning
liability for the maintenance of stone groins constructed along certain areas of
Long Island's shoreline; (10) the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to the state employee retirement
system; (11) action by school districts and their employees challenging the
constitutionality of Chapter 175 of the Laws of 1990 which deferred school
district contributions to the public retirement system and reduced by like
amount state aid to the school districts; (12) challenges to portions of Public
Health law, which imposed a 13% surcharge on inpatient hospital bills paid by
commercial insurers and employee welfare benefit plans and portions of Chapter
55 of the Laws of 1992 requiring hospitals to impose and remit to the State an
11% surcharge on hospital bills paid by commercial insurers, and which required
health maintenance organizations to remit to the State a surcharge of up to 9%;
and (13) a challenge to provisions of the Public Health Law and implementing
regulations that imposed a bad debt and charity care allowance on all hospital
bills and a 13% surcharge on inpatient bills paid by employee welfare benefit
plans.
A number of cases have also been instituted against the State
challenging the constitutionality of various public authority financing
programs. In SCHULZ, ET AL. V. STATE OF NEW YORK, a proceeding was commenced on
April 29, 1991 in the Supreme Court, Albany County challenging the
constitutionality of certain state bonding and financing programs authorized by
Chapter 190 of the Laws of 1990. By opinion dated May 11, 1993, the Court of
Appeals held that petitioners have standing as voters pursuant to Section 11 of
Article VII of the State but affirmed the order dismissing the proceeding on the
ground of laches.
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In a proceeding commenced on August 6, 1991 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County), petitioners challenge
the constitutionality of two bonding programs of the New York State Thruway
Authority authorizing by Chapters 166 and 410 of the Laws of 1991. The
defendants' motion to dismiss the action on procedural grounds was denied by
order of the Supreme Court dated January 2, 1992. By order dated November 5,
1992, the Appellate Division, Third Department, reversed the order of the
Supreme Court and granted defendants' motion to dismiss on grounds of standing
and mootness. The proceeding is pending.
In an action commenced on February 6, 1992 (SCHULZ, ET AL. V.
STATE OF NEW YORK, ET AL., Supreme Court, Albany County) plaintiffs seek a
judgment declaring unconstitutional sections 1, 2, 3 and 10 of Chapter 220 of
the Laws of 1990 which relate to the creation and operation of LGAC. On Mach 3,
1992 the Supreme Court, Albany County, granted defendants' motion for summary
judgment in all respects and dismissed the complaint. On July 23, 1992 the
Appellate Division, Third Department, modified and affirmed the judgment of the
Supreme Court, holding that the plaintiffs lacked standing. By opinion dated May
11, 1993, the Court of Appeals denied plaintiffs' motion for leave to appeal and
dismissed the litigation. The Court noted that plaintiffs had failed to plead
standing as voters pursuant to Section 11 of Article VII of the State
Constitution, and, thus, the motion for leave to appeal did not directly involve
a substantial constitutional question.
In SCHULZ, ET AL. V. STATE OF NEW YORK, ET AL., commenced May
24, 1993, Supreme Court, Albany County, petitioners challenge, among other
things, the constitutionality of, and seek to enjoin certain highway, bridge and
mass transportation bonding programs of the New York State Thruway Authority and
the Metropolitan Transportation Authority authorized by Chapter 56 of the Laws
of 1933. Petitioners contend that the application of State tax receipts held in
dedicated transportation funds to pay debt service on bonds of the Thruway
Authority and of the Metropolitan Transportation Authority violates Section 8
and 11 of Article VII and Section 5 of Article X of the State Constitution and
due process provisions of the State and Federal Constitutions. By order dated
May 24, 1993, the Supreme Court temporarily enjoined the State from implementing
the bonding programs of the Thruway Authority and Metropolitan Transportation
Authority described above.
Several actions challenging the withholdings of pay from civil
employees by the State have also been decided against the State. A settlement
has been announced in the actions brought by certain health insurers and health
maintenance organizations challenging the constitutionality of the State's
statutory scheme relating to excess medical malpractice insurance premiums. The
U.S. District Court for the Wester District of New York has approved a
settlement and award to plaintiffs in various employment discrimination suits
brought against the State and its agencies. A stipulation to dismiss an action
involving the treatment provided at a state facility for the developmentally
disabled has been filed by the involved parties and approved by order of the
District Court.
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The legal proceedings noted above involve State finances,
State programs and miscellaneous tort, real property and contract claims in
which the State is a defendant and the monetary damages sought are substantial.
These proceedings could affect adversely the financial condition of the State in
the 1993-94 fiscal year or thereafter. Adverse developments in these proceedings
or the initiation of new proceedings could affect the ability of the State to
maintain a balanced 1993-94 State Financial Plan. An adverse decision in any of
these proceedings could exceed the amount of the 1993-94 State Financial Plan
reserve for the payment of judgments and, therefore, could affect the ability of
the State to maintain a balanced 1993-94 State Financial Plan. In its audited
financial statements for the 1991-92 fiscal year, the State reported its
estimated liability for awarded and anticipated unfavorable judgments to be $489
million. The State has stated its belief that the 1993-94 State Financial Plan
includes sufficient reserves for the payment of judgments that may be required
during the 1993-94 fiscal year.
Although other litigation is pending against New York State,
except as described above, no current litigation involves New York State's
authority, as a matter of law, to contract indebtedness, issue its obligations,
or pay such indebtedness when it matures, or affects New York State's power or
ability, as a matter of law, to impose or collect significant amounts of taxes
and revenues.
THE AUTHORITIES. The fiscal stability of the State is related
to the fiscal stability of its Authorities, which generally have responsibility
for financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. As of September 30, 1992, the latest data available, there were
18 Authorities that had outstanding debt of $100 million or more. The aggregate
outstanding debt, including refunding bonds, of these 18 Authorities was $62.2
billion as of September 30, 1992, of which approximately $8.2 billion was moral
obligation debt and approximately $17.1 billion was financed under
lease-purchase or contractual-obligation financing arrangements.
Authorities are generally supported by revenues generated by
the projects financed or operated, such as fares, user fees on bridges, highway
tolls and rentals for dormitory rooms and housing. In recent years, however, the
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the 18 Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This assistance is expected to continue to be
required in future years. New York State provided $947.4 million and $955.5
million in financial assistance to the 18 Authorities during New York State's
1991-92 and 1992-93 fiscal years, respectively, and expects to provide
approximately $1,096.6 million in financial assistance to these Authorities in
its 1993-94 fiscal year. The amounts set forth above exclude, however, amounts
provided for capital construction and pursuant to
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lease-purchase or contractual-obligation (including service contract debt)
financing arrangements.
New York State provided $947.4 million and $955.5 million in
financial assistance to the 18 Authorities during New York State's 1991-92 and
1992-93 fiscal years, respectively, and expects to provide approximately
$1,096.6 million in financial assistance to these Authorities in its 1993-94
fiscal year. The amounts set forth above exclude, however, amounts provided for
capital construction and pursuant to lease-purchase or contractual-obligation
(including service contract debt) financing arrangements.
Experience has shown that if an Authority suffers serious
financial difficulties, both the ability of the State and the Authorities to
obtain financing in the public credit markets and the market price of the
State's outstanding bonds and notes may be adversely affected. The New York
State Housing Finance Agency and the New York State Urban Development
Corporation have in the past required substantial amounts of assistance from the
State to meet debt service costs or to pay operating expenses. Further
assistance, possibly in increasing amounts, may be required for these, or other,
Authorities in the future. In addition, certain statutory arrangements provide
for State local assistance payments otherwise payable to localities to be made
under certain circumstances to certain Authorities. The State has no obligation
to provide additional assistance to localities whose local assistance payments
have been paid to Authorities under these arrangements. However, in the event
that such local assistance payments are so diverted, the affected localities
could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the
State of New York is closely related to the fiscal health of its localities,
particularly the City of New York, which has required and continues to require
significant financial assistance from New York State. The City's independently
audited operating results for each of its 1981 through 1992 fiscal years, which
end on June 30, show a General Fund surplus reported in accordance with GAAP.
The City has eliminated the cumulative deficit in its net General Fund position.
In addition, the city's financial statements for the 1992 fiscal year received
an unqualified opinion from the City's independent auditors, the tenth
consecutive year the City has received such an opinion.
In 1975, New York City suffered a fiscal crisis that impaired
the borrowing ability of both the City and New York State. In that year the City
lost access to public credit markets. The City was not able to sell short-term
notes to the public again until 1979. Since 1981, the City has fully satisfied
its seasonal financing needs with sales of short-term notes in the public credit
markets ranging from $850 million in fiscal year 1985 to $1.2 billion in fiscal
year 1989.
On February 11, 1991, Moody's lowered their rating on the
city's general obligation bonds to "Baa-1" from "A". Moody's expressed doubts
about
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whether the City's January 16, 1991 financial plan presents a "reasonable
program to achieve budget balance in fiscal 1991 and 1992 and assure long-term
structural integrity." Moody's stated "the enormity of the current problem, the
severity of required expenditure cuts, the substantial revenue enhancements that
will be require to achieve balance, the vulnerability to exogenous factors, and
the extremely short time frame within which all this must be accomplished
introduce substantial new risk to the city's short- and long-term credit
outlook." On April 29, 1991, S&P downgraded New York city's outstanding $1.3
billion of general obligation revenue and anticipation notes from "SP-1" to
"SP-2". S&P also announced a rating of "SP-2" for the City's offering of $1.25
billion of general obligation revenue anticipation notes. The lower ratings of
S&P "reflect the City's aggravated short-term cash position for fiscal 1991, the
unusually high level of total revenue anticipation note exposure resulting from
the State's delay in passing its budget and distributing fiscal aid, and
continued pressure on revenues and expenditures due to prevailing economic
conditions." On April 30, 1991, Moody's assigned a rating of "MIG-2" to the same
offering of $1.25 billion of general obligation revenue anticipation notes.
Moody's stated that "although an increasingly strained financial outlook for
both the City and the State complicates the State budget adoption process, this
rating on revenue anticipation notes relies explicitly on the expectation that
the State is fully cognizant of the consequences of further untimely delays in
state budget adoption and will act responsibly. Failure of the State to find a
timely resolution to the budget process will have sever implications for the
normal financial performance of New York City and other local governments in New
York State." On October 7, 1991, Moody's again assigned a "MIG-2" rating to New
York City's $1.25 billion of revenue anticipation notes, fiscal 1992, Series A.
Moody's stated in its January 6, 1992 downgrade of certain New
York State obligations that while such action did not directly affect the bond
ratings of local governments in New York State, the impact of the State's fiscal
stringency on local government bond ratings will be assessed on a case-by-case
basis. On June 22, 1992, Moody's gave its MIG-1 rating tot he city's $1.4
billion revenue anticipation notes and tax anticipation notes citing New York
City's "markedly improved" short-term credit position.
On July 6, 1993, S&P reaffirmed the city's "A-" rating on
$20.4 billion of general obligation bonds stating that "the City has identified
additional gap-closing measures that have recurring value and will reduce next
year's budget gap... by approximately $400 million." Officials at Moody's also
indicated that there were no plans to alter its "Baa1" rating on the city's
general obligation bonds.
New York City is heavily dependent on New York State and
Federal assistance to cover insufficiencies in its revenues. There can be no
assurance that in the future Federal and State assistance will enable the city
to make up its budget deficits. To help alleviate the city's financial
difficulties, the Legislature credited the Municipal Assistance Corporation
("MAC") in 1975. MAC is authorized to issue bonds and notes payable from
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certain stock transfer tax revenues, from the City's portion of the State sales
tax derived in the City and from State per capita aid otherwise payable by the
State to the City. Failure by the State to continue the imposition of such
taxes, the reduction of the rate of such taxes to rates less than those in
effect on July 2, 1975, failure by the State to pay such aid revenues and the
reduction of such aid revenues below a specified level are included among the
events of default in the resolutions authorizing MAC's long-term debt. The
occurrence of an event of default may result in the acceleration of the maturity
of all or a portion of MAC's debt. As of September 30, 1991, MAC had outstanding
an aggregate of approximately $6.471 billion of its bonds. MAC bonds and notes
constitute general obligations of MAC and do not constitute an enforceable
obligation or debt of either the State or the City. Under its enabling
legislation, MAC's authority to issue bonds and notes (other than refunding
bonds and notes) expired on December 31, 1984. Legislation has been passed by
the Legislature which would, under certain conditions, permit MAC to issue up to
$1.465 billion of additional bonds.
Since 1975, the City's financial condition has been subject to
oversight and review by the New York State Financial Control Board (the "Control
Board") and since 1978 the City's financial statements have been audited by
independent accounting firms. To be eligible for guarantees and assistance, the
City is required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
1993-1996 FINANCIAL PLAN
On June 11, 1992, the City submitted to the Control Board a
new four-year financial plan covering fiscal years 1993 through 1996 ("the
1993-1996 Financial Plan"). The 1993-1996 Financial Plan is based on the City's
adopted expense budget for fiscal year 1993, which includes actions to close a
previously projected gap of approximately $1.2 billion. The 1993-1996 Financial
Plan projected a balanced budget for fiscal year 1993 based upon revenues of
$29.508 billion, but budget gaps of $1.6 billion, $1.7 billion and $2.3 billion
in fiscal years 1994, 1995, and 1996, respectively. The 1993-1996 Financial Plan
proposes to eliminate these gaps through a program of City, State and Federal
actions.
On February 9, 1993, the City issued a modification to the
1993-1996 Financial Plan (the "February Modification"). After taking into
account potential higher labor costs based upon a labor agreement reached in
January and various other re-estimates of revenues and expenditures, the
February Modification projected a balanced budget for fiscal year 1993, based
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upon revenues of $30.367 billion. The February Modification projected budget
gaps in the subsequent years that are substantially larger than those projected
in the 1993-1996 Financial Plan. Among the reasons for the larger gaps are lower
estimates of real property tax revenues, higher estimates of labor costs
deriving from the labor settlement reached in January and increased projections
of spending for the Board of Education. Taking these and other developments into
account, the February Modifications projected budget gaps for fiscal years 1994,
1995 and 1996 of $2.1 billion, $3.1 billion and $3.8 billion, respectively. The
February Modification included resources from additional City, State and federal
actions to offset these larger gaps.
On March 25, 1993, the staff of the Control Board issued a
report on the February Modification. The staff concluded that, while the City
will balance its budget in fiscal 1993, the February Modification does not make
progress towards establishing structural balance with a revenue base sufficient
to sustain a stable level of services. After taking into account what the staff
considered to be the achievable elements of the City's gap-closing program, the
report identified risks of approximately $1.0 billion, $1.9 billion, $2.3
billion and $2.6 billion in fiscal years 1994 through 1997, respectively. The
report identified these major risks as actions that require State or federal
approval; unspecified City gap-closing actions; risks associated with the City's
revenue and expenditure estimates, including lower-than-planned revenues from
the City lottery and higher-than-planned overtime costs; proposed Board of
Education expenditure reductions; and the proposed sale of certain property tax
receivables. In addition, the report explored issues related to the growth of
the City's substantial debt-service burden and personal-services budget, and
noted that the City's property tax forecast may need further reduction.
On May 3, 1993, the Mayor released his Executive Budget for
fiscal year 1994 and revised projections for fiscal years 1993 through 1997 (the
"Revised Financial Plan"). The Revised Financial Plan projects a balanced budget
for fiscal year 1993 based upon revenues of $30.659 billion, after the
prepayment in fiscal year 1993 of $345 million in expenditures previously
planned for fiscal year 1994. After taking the prepayment into account, the
Revised Financial Plan also projects a balanced budget for fiscal year 1994
based upon revenues of $31.399 billion. Budget balance in that year is dependent
upon the success of the Revised Plan's fiscal year 1994 revenue enhancement and
cost reduction program, the major elements of which include agency initiatives
valued at $791 million, the receipt of $530 million of anticipated but as yet
unidentified State and federal aid, and the completion for a sale of real estate
tax receivables which is expected to generate $215 million. For City fiscal
years 1995, 1996 and 1997, the Revised Financial Plan projects gaps of $1.7
billion, $2.2 billion and $2.6 billion, respectively, after taking into account
the recurring impact of the fiscal year 1994 revenue enhancement and cost
reduction program. The Revised Financial Plan proposes to close these gaps
through a combination of city, State and federal actions.
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On June 4, 1993, OSDC issued a report on the Revised Financial
Plan. The report concluded that budget balance for fiscal year 1994 will be
difficult to achieve. The report found that expenditures could be $280 million
higher, due to higher estimates for payments to the Health and Hospitals
Corporation (HHC) and for overtime in the uniformed services. In addition, the
report noted that revenues could be $111 million lower, in part, because it is
unlikely that resources from a sale or restructuring of the Off-Track Betting
Corporation will be realized as planned. The report also found that much of the
anticipated budget relief of $530 million from the federal and State governments
was unlikely to materialize and that it was uncertain whether the City would be
able to realize a one-time gain of $215 million from the proposed sale of
certain real estate tax receivables.
For fiscal years 1995 through 1997, the OSDC report found that
the budget gaps faced by the City could be greater than in the Revised Financial
Plan by $345 million in fiscal year 1995, $350 million in fiscal year 1996 and
$322 million in fiscal year 1997. These estimates reflect higher payments to HHC
and the expectation that receipts from a City-run lottery will not materialize.
The report noted that the Revised Financial Plan makes no provision for
collective bargaining costs after the expiration for current contracts in
mid-fiscal year 1995 and estimated that each annual wage increase of one percent
would cause the projected budget gaps to widen by $56 million, $209 million and
$363 million in fiscal years 1995 through 1997, respectively. Finally, the
report concluded that with City spending growing faster than revenues, the
challenge of balancing future budgets is formidable.
On June 13, 1993, the City Council adopted a budget for fiscal
year 1994 which projects balanced operations based upon revenues of $31,269
billion (the "Adopted Budget"). The Adopted Budget eliminates $300 million of
anticipated aid from the State and federal governments that was included in the
Revised Financial Plan as it related to fiscal year 1994. The impact of the
elimination is offset in the Adopted Budget by a larger program of agency
spending reductions and revenue enhancements, as well as various re-estimates of
revenues and expenditures.
On June 23, 1993, the City submitted to the Control Board a
fourth quarter modification to the Revised Financial Plan as it relates to
fiscal year 1993. The modification projects a balanced budget based on revenues
of $30,653 billion after taking into account a discretionary transfer of surplus
fiscal year 1993 funds to fiscal year 1994. The modification also includes an
unallocated reserve of $40 million, which the City believes should be adequate
to provide for any adjustments required by the year-end audit of its fiscal year
1993 operating results. Such audited results are expected to be known on or
about October 31, 1993.
The City is expected to submit to the Control Board a
four-year Financial Plan covering fiscal years 1994 through 1997 based on the
Adopted Budget. OSDC and the staff of the Control Board are expected to issue
reports commenting on their reviews of that Financial Plan.
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Estimates of the City's revenues and expenditures are based on
numerous assumptions and subject to various uncertainties. If expected Federal
or New York State aid is not forthcoming, if unforeseen developments in the
economy significantly reduce revenues derived from economically sensitive taxes
or necessitate increased expenditures for public assistance, if the City should
negotiate wage increases for its employees greater than the amounts provided for
in the City's financial plan or if other uncertainties materialize that reduce
expected revenues or increase projected expenditures, then, to avoid operating
deficits, the City may be required to implement additional actions, including
increases in taxes and reductions in essential City services. The City might
also seek additional assistance from New York State.
BORROWINGS
The City requires certain amounts of financing for seasonal
and capital spending purposes. The City has issued $1.4 billion of notes for
seasonal financing purposes during its 1993 fiscal year and expects this amount
will be sufficient for the year. The City's capital financing program projects
long-term financing requirements of approximately $16.8 billion for the City's
fiscal years 1994 through 1997 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirements
include expenditures for the City's water supply system, sewage and waste
disposal systems, roads, bridges, mass transit, schools and housing. In addition
to financing for new purposes, the City and the New York City Municipal Water
Finance Authority have issued refunding bonds totalling $3.6 billion.
OTHER LOCALITIES
Certain localities in addition to New York City could have
financial problems leading to requests for additional State assistance during
the State's 1993-1994 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1993-1994 fiscal year.
Fiscal difficulties experienced by the City of Yonkers
("Yonkers") resulted in the creation of the Financial Control Board for the City
of Yonkers (the "Yonkers Board") by the State in 1984. The Yonkers Board is
charged with oversight of the fiscal affairs of Yonkers. Future actions taken by
the Governor of the State Legislature to assist Yonkers could result in
allocation of State resources in amounts that cannot yet be determined.
CERTAIN MUNICIPAL INDEBTEDNESS
Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. In 1991, the total indebtedness
of all localities in the State was approximately $32.2 billion, of which $16.8
billion was debt of New York City (excluding $6.7 billion in MAC debt); a small
portion (approximately 39.0 million) this indebtedness represented
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borrowing to finance budgetary deficits and was issued pursuant to enabling
State legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Fifteen localities
had outstanding indebtedness for deficit financing at the close of their fiscal
year ending in 1991.
In 1992, an unusually large number of local government units
requested authorization for deficit financing. According to the Comptroller, ten
local government units have been authorized to issue deficit financing in the
aggregate amount of $131.1 million. The current session of Legislature may
receive as many or more requests for deficit-financing authorizations as a
result of deficits previously incurred by local governments. Although the
Comptroller has indicated that the level of deficit financing requests is
unprecedented, such developments are not expected to have a material adverse
effect on the financial condition of the State.
Certain proposed Federal expenditure reductions would reduce,
or in some cases eliminate, Federal funding of some local programs and
accordingly might impose substantial increased expenditure requirements on
affected localities to increase local revenues to sustain those expenditures. If
the State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within the
State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
INVESTMENT LIMITATIONS.
MONEY MARKET PORTFOLIO AND MUNICIPAL MONEY MARKET PORTFOLIO.
Neither the Money Market Portfolio nor the Municipal Money Market Portfolio may:
(1) borrow money, except from banks for temporary
purposes (and with respect to the Money Market Portfolio only, except
for reverse repurchase agreements) and then in amounts not in excess
of 10% of the value of the Portfolio's total assets at the time of
such borrowing, and only if after such borrowing there is asset
coverage of at least 300 percent for all borrowings of the Portfolio;
or mortgage, pledge, hypothecate any of its assets except in
connection with such borrowings and then, with respect to the Money
Market Portfolio, in amounts not in excess of 10% of the value of a
Portfolio's total assets at the time of such borrowing and, with
respect to the Municipal Money Market Portfolio, in amounts not in
excess of the lesser of the dollar
24
<PAGE>
amounts borrowed or 10% of the value of a Portfolio's total assets at
the time of such borrowing; or purchase portfolio securities while
borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio's securities by
enabling the Portfolio to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient.);
(2) purchase securities of any one issuer, other than
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, if immediately after and as a result of such
purchase more than 5% of a Portfolio's total assets would be invested
in the securities of such issuer, or more than 10% of the outstanding
voting securities of such issuer would be owned by the Portfolio,
except that up to 25% of the value of a Portfolio's assets may be
invested without regard to this 5% limitation;
(3) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(4) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, a Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of
Municipal Obligations directly from the issuer thereof in accordance
with a Portfolio's investment objective, policies and limitations may
be deemed to be an underwriting;
(5) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(6) purchase or sell real estate, provided that a
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein;
(7) purchase or sell commodities or commodity
contracts;
(8) invest in oil, gas or mineral exploration or
development programs;
(9) make loans except that a Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and (except for the Municipal Money Market
Portfolio) may enter into repurchase agreements;
25
<PAGE>
(10) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(11) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the Municipal Money Market Portfolio may not (i) under normal
market conditions invest less than 80% of its net assets in securities the
interest on which is exempt from the regular Federal income tax, although the
interest on such securities may constitute an item of tax preference for
purposes of the Federal alternative minimum tax, (ii) invest in private activity
bonds where the payment of principal and interest are the responsibility of a
company (including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry.
In addition to the foregoing enumerated investment
limitations, the Money Market Portfolio may not:
(a) Purchase any securities other than Money-Market
Instruments, some of which may be subject to repurchase agreements, but the
Portfolio may make interest-bearing savings deposits in amounts not in excess of
5% of the value of the Portfolio's assets and may make time deposits;
(b) Purchase any securities which would cause, at the time of
purchase, less than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of issuers in the banking industry, or in
obligations, such as repurchase agreements, secured by such obligations (unless
the Portfolio is in a temporary defensive position) or which would cause, at the
time of purchase, more than 25% of the value of its total assets to be invested
in the obligations of issuers in any other industry; and
(c) Invest more than 5% of its total assets (taken at the time
of purchase) in securities of issuers (including their predecessors) with less
than three years of continuous operations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares
the Portfolio are represented at the meeting in person or by proxy.
With respect to limitation (b) above concerning industry
concentration (applicable to the Money Market Portfolio), the Portfolio will
consider wholly-owned finance companies to be in the industries of their parents
if their activities are primarily related to financing the activities
26
<PAGE>
of the parents, and will divide utility companies according to their services.
For example, gas, gas transmission, electric and gas, electric and telephone
will each be considered a separate industry. The policy and practices stated in
this paragraph may be changed without the affirmative vote of the holders of a
majority of the affected Money Market Portfolio's outstanding shares, but any
such change may require the approval of the Securities and Exchange Commission
(the "SEC") and would be disclosed in the Prospectus prior to being made.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the Municipal Money Market Portfolio will meet the following limitation on its
investments in addition to the fundamental investment limitations described
above. This limitation may be changed without a vote of shareholders of the
Municipal Money Market Portfolio.
1. The Municipal Money Market Portfolio will not
purchase any Put if after the acquisition of the Put the Municipal
Money Market Portfolio has more than 5% of its total assets invested
in instruments issued by or subject to Puts from the same institution,
except that the foregoing condition shall only be applicable with
respect to 75% of the Municipal Money Market Portfolio's total assets.
A "Put" means a right to sell a specified underlying instrument within
a specified period of time and at a specified exercise price that may
be sold, transferred or assigned only with the underlying instrument.
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.
27
<PAGE>
2. The Money Market Portfolio will limit its
purchases of Second Tier Securities, which are eligible securities
other than First Tier Securities, to 5% of its total assets.
3. The Money Market Portfolio will limit its
purchases of Second Tier Securities of one issuer to the greater of 1%
of its total assets or $1 million.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO. The Government
Obligations Money Market Portfolio may not:
1. Purchase securities other than U.S. Treasury
bills, notes and other obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, and repurchase
agreements relating to such obligations. There is no limit on the
amount of the Portfolio's assets which may be invested in the
securities of any one issuer of obligations that the Portfolio is
permitted to purchase.
2. Borrow money, except from banks for temporary
purposes, and except for reverse repurchase agreements, and then in an
amount not exceeding 10% of the value of the Portfolio's total assets,
and only if after such borrowing there is asset coverage of at least
300 percent for all borrowings of the Portfolio; or mortgage, pledge,
hypothecate its assets except in connection with any such borrowing
and in amounts not in excess of 10% of the value of the Portfolio's
assets at the time of such borrowing; or purchase portfolio securities
while borrowings in excess of 5% of the Portfolio's net assets are
outstanding. (This borrowing provision is not for investment leverage,
but solely to facilitate management of the Portfolio by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.)
3. Act as an underwriter.
4. Make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations, may enter into repurchase agreements for
securities, and may lend portfolio securities against collateral
consisting of cash or securities which are consistent with the
Portfolio's permitted investments, which is equal at all times to at
least 100% of the value of the securities loaned. There is no
investment restriction on the amount of securities that may be loaned,
except that payments received on such loans, including amounts
received during the loan on account of interest on the securities
loaned, may not (together with all non-qualifying income) exceed 10%
of the Portfolio's annual gross income (without offset for realized
capital gains) unless, in the opinion of counsel to the Fund, such
amounts are qualifying income under Federal income tax provisions
applicable to regulated investment companies.
28
<PAGE>
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio are represented at the meeting in person or by proxy.
The Portfolio may purchase securities on margin only to obtain
short-term credit necessary for clearance of portfolio transactions.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. The New York
Municipal Money Market Portfolio may not:
(1) borrow money, except from banks for temporary
purposes and except for reverse repurchase agreements, and then in
amounts not in excess of 10% of the value of the Portfolio's total
assets at the time of such borrowing, and only if after such borrowing
there is asset coverage of at least 300 percent for all borrowings of
the Portfolio; or mortgage, pledge, hypothecate any of its assets
except in connection with such borrowings and then in amounts not in
excess of 10% of the value of a Portfolio's total assets at the time of
such borrowing; or purchase portfolio securities while borrowings in
excess of 5% of the Portfolio's net assets are outstanding. (This
borrowing provision is not for investment leverage, but solely to
facilitate management of the Portfolio's securities by enabling the
Portfolio to meet redemption requests where the liquidation of
portfolio securities is deemed to be disadvantageous or inconvenient);
(2) purchase securities on margin, except for
short-term credit necessary for clearance of portfolio transactions;
(3) underwrite securities of other issuers, except to
the extent that, in connection with the disposition of portfolio
securities, the Portfolio may be deemed an underwriter under Federal
securities laws and except to the extent that the purchase of Municipal
Obligations directly from the issuer thereof in accordance with the
Portfolio's investment objective, policies and limitations may be
deemed to be an underwriting;
(4) make short sales of securities or maintain a
short position or write or sell puts, calls, straddles, spreads or
combinations thereof;
(5) purchase or sell real estate, provided that the
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or interests
therein;
(6) purchase or sell commodities or commodity
contracts;
(7) invest in oil, gas or mineral exploration or
development programs;
29
<PAGE>
(8) make loans except that the Portfolio may purchase
or hold debt obligations in accordance with its investment objective,
policies and limitations and may enter into repurchase agreements;
(9) purchase any securities issued by any other
investment company except in connection with the merger,
consolidation, acquisition or reorganization of all the securities or
assets of such an issuer; or
(10) make investments for the purpose of exercising
control or management.
In addition to the foregoing enumerated investment
limitations, the New York Municipal Money Market Portfolio may not (i) under
normal market conditions, invest less than 80% of its net assets in securities
the interest on which is exempt from the regular Federal income tax and does not
constitute an item of tax preference for purposes of the Federal alternative
minimum tax ("Tax-Exempt Interest"), (ii) invest in private activity bonds where
the payment of principal and interest are the responsibility of a company
(including its predecessors) with less than three years of continuous
operations; and (iii) purchase any securities which would cause, at the time of
purchase, more than 25% of the value of the total assets of the Portfolio to be
invested in the obligations of the issuers in the same industry; provided that
this limitation shall not apply to Municipal Obligations or governmental
guarantees of Municipal Obligations; and provided, further, that for the purpose
of this limitation only, private activity bonds that are considered to be issued
by non-governmental users (see the second investment limitation above) shall not
be deemed to be Municipal Obligations.
The foregoing investment limitations cannot be changed without
the affirmative vote of the lesser of (a) more than 50% of the outstanding
shares of the Portfolio or (b) 67% or more of the shares of the Portfolio
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Portfolio affected are represented at the meeting in person or by proxy.
So long as it values its portfolio securities on the basis of
the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act,
the New York Municipal Money Market Portfolio will meet the following limitation
on its investments in addition to the fundamental investment limitations
described above. This limitation may be changed without a vote of shareholders
of the New York Municipal Money Market Portfolio.
1. The New York Municipal Money Market Portfolio will
not purchase any Put if after the acquisition of the Put the New York
Municipal Money Market Portfolio has more than 5% of its total assets
invested in instruments issued by or subject to Puts from the same
institution, except that the foregoing condition shall only be
applicable with respect to 75% of the New York Municipal Money Market
Portfolio's total assets. A "Put" means a right to sell a specified
underlying instrument within a specified period of time and at a
30
<PAGE>
specified exercise price that may be sold, transferred or assigned
only with the underlying instrument.
In order to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended, the Portfolio will not purchase
the securities of any issuer if as a result more than 5% of the value of the
Portfolio's assets would be invested in the securities of such issuer, except
that (a) up to 50% of the value of the Portfolio's assets may be invested
without regard to this 5% limitation, provided that no more than 25% of the
value of the Portfolio's assets are invested in the securities of any one issuer
and (b) this 5% limitation does not apply to securities issued or guaranteed by
the U.S. Government, or its agencies or instrumentalities. For purposes of this
limitation, a security is considered to be issued by the governmental entity (or
entities) whose assets and revenues back the security, or, with respect to a
private activity bond that is backed only by the assets and revenues of a
non-governmental user, by such non-governmental user. In certain circumstances,
the guarantor of a guaranteed security may also be considered to be an issuer in
connection with such guarantee. This investment policy is not fundamental and
may be changed by the Board of Directors without shareholder approval.
In order to permit the sale of its shares in certain states,
the Fund may make commitments more restrictive than the investment limitations
described above. Should the Fund determine that any such commitment is no longer
in its best interest, it will revoke the commitment and terminate sales of its
shares in the state involved.
31
<PAGE>
DIRECTORS AND OFFICERS
The directors and executive officers of the Fund, their
business addresses and principal occupations during the past five years are:
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Arnold M. Reichman - 48* Director Since 1986, Managing
466 Lexington Avenue Director and Assistant
New York, NY 10017 Secretary, E.M. Warburg,
Pincus & Co., Inc.;
Since 1990, Chief
Executive Officer and
since 1991, Secretary,
Counsellors Securities Inc.;
Officer of various
investment companies
advised by Warburg,
Pincus Counsellors, Inc.
Robert Sablowsky - 58** Director Since 1985, Executive
14 Wall Street Vice President of
New York, NY 10005 Gruntal & Co., Inc.,
Director, Gruntal & Co.,
Inc. and Gruntal
Financial Corp.
Francis J. McKay - 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.), Mart PMM, Inc. (formerly
Pennsauken Merchandise Mart, Inc.)
(shopping centers); and Since
1975, Director and Executive
Vice President,
Cellucap Mfg. Co., Inc.
(manufacturer of disposable
headwear).
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Principal Occupation
Name, Address and Age Position with Fund During Past Five Years
- --------------------- ------------------ ----------------------
<S> <C> <C>
Julian A. Brodsky - 63 Director Director and Vice
1234 Market Street, Chairman, Comcast
16th Floor Corporation; Director,
Philadelphia, PA 19107-3723 Comcast Cablevision of
(cable television and
communications) and
Nextel (Wireless
Communications).
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 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
103 Bellevue Parkway Center; Vice President
Wilmington, DE 19809 and Trustee, Pennsylvania School
for the Deaf; Trustee,
Immaculata College; Vice
President and Treasurer
of various investment
companies advised by
PNC Institutional
Management Corporation.
Morgan R. Jones - 57 Secretary Partner, the law firm of
1100 PNB Bank Building Drinker Biddle & Reath,
Broad and Chestnut Streets Philadelphia,
Philadelphia, PA 19107 Pennsylvania (formerly,
Chairman and Chief
Executive Officer);
Director, Rocking Horse Child Care
Centers of America, Inc.
</TABLE>
33
<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 Gruntal & Co.,
Inc., a broker-dealer.
Messrs. McKay, Sternberg and Brodsky are members of the Audit
Committee of the Board of Directors. The Audit Committee, among other things,
reviews results of the annual audit and recommends to the Fund the firm to be
selected as independent auditors.
Messrs. Reichman, McKay and van Roden are members of the
Executive Committee of the Board of Directors. The Executive Committee may
generally carry on and manage the business of the Fund when the Board of
Directors is not in session.
Messrs. McKay, Sternberg, Brodsky and van Roden are members of
the Nominating Committee of the Board of Directors. The Nominating Committee
recommends to the Board annually all persons to be nominated as directors of the
Fund.
The Fund pays directors who are not "affiliated persons" (as
that term is defined in the 1940 Act) of the Fund $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:
DIRECTOR 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
34
<PAGE>
Institutional Management Corporation ("PIMC"), the Fund's adviser, PNC Bank,
National Association ("PNC Bank"), the sub-advisor to all Portfolios other than
the New York Municipal Money Market Portfolio, which has no sub-advisor, and the
Fund's custodian, PFPC Inc. ("PFPC"), the administrator to the Municipal Money
Market and New York Municipal Money Market Portfolios and the Fund's transfer
and dividend disbursing agent, and Counsellors Securities Inc. (the
"Distributor"), the Fund's distributor, the Fund itself requires only one
part-time employee. No officer, director or employee of PIMC, PNC Bank, PFPC or
the Distributor currently receives any compensation from the Fund.
INVESTMENT ADVISORY, DISTRIBUTION AND SERVICING ARRANGEMENTS
ADVISORY AND SUB-ADVISORY AGREEMENTS. The advisory and
sub-advisory services provided by PIMC and PNC Bank and the fees received by
PIMC and PNC Bank for such services are described in the Prospectus. PIMC
renders advisory services to each of the Portfolios and also renders
administrative services to the Money Market and Government Obligations Money
Market Portfolios pursuant to separate investment advisory agreements, and PNC
Bank renders sub-advisory services to each of the Portfolios other than the New
York Municipal Money Market Portfolio, which has no sub-advisor, pursuant to
separate sub-advisory agreements. Each of the Sub-Advisory Agreements is dated
August 16, 1988. The advisory agreements relating to the Money Market and
Government Obligations Money Market Portfolios are each dated August 16, 1988,
the advisory agreement relating to the New York Municipal Money Market Portfolio
is dated November 5, 1991 and the advisory agreement relating to the Municipal
Money Market Portfolio is dated April 21, 1992. Such advisory and sub-advisory
agreements are hereinafter collectively referred to as the "Advisory Contracts."
For the year ended August 31, 1996, PIMC RECEIVED (AFTER
WAIVERS) $4,174,375 IN ADVISORY FEES WITH RESPECT TO THE MONEY MARKET PORTFOLIO,
$190,687 IN ADVISORY FEES WITH RESPECT TO THE MUNICIPAL MONEY MARKET PORTFOLIO,
$1,638,622 IN ADVISORY FEES WITH RESPECT TO THE GOVERNMENT OBLIGATIONS MONEY
MARKET PORTFOLIO AND WAIVED ALL OF THE INVESTMENT ADVISORY FEES PAYABLE TO IT OF
$2,709 WITH RESPECT TO THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. DURING THE
SAME YEAR, PIMC WAIVED $ 3,527,715 OF ADVISORY FEES WITH RESPECT TO THE MONEY
MARKET PORTFOLIO, $1,218,973 OF ADVISORY FEES WITH RESPECT TO THE MUNICIPAL
MONEY MARKET PORTFOLIO, $671,811 OF ADVISORY FEES WITH RESPECT TO THE GOVERNMENT
OBLIGATIONS MONEY MARKET PORTFOLIO AND $268,017 OF ADVISORY FEES WITH RESPECT TO
THE NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO. FOR THE YEAR ENDED AUGUST 31,
1995, PIMC received (after waivers) $2,274,697 in advisory fees with respect to
the Money Market Portfolio, $67,752 in advisory fees with respect to the
Municipal Money Market Portfolio, $780,122 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $187,660 with respect to the New York Municipal
Money Market Portfolio. During the same year, PIMC waived $2,589,882 of advisory
fees with respect to the Money Market Portfolio, $1,041,321 of advisory fees
with respect to the
35
<PAGE>
Municipal Money Market Portfolio, $398,363 of advisory fees with respect to the
Government Obligations 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, $7,733 in advisory fees with respect to the
Municipal Money Market Portfolio, $580,435 in advisory fees with respect to
Government Obligations Money Market Portfolio and waived all of the investment
advisory fees payable to it of $193,386 with respect to the New York Municipal
Money Market Portfolio under its Advisory Contract with the Fund. During the
same year, PIMC waived $2,255,986 of advisory fees with respect to the Money
Market Portfolio, $1,091,646 of advisory fees with respect to the Municipal
Money Market Portfolio, $461,938 of advisory fees with respect to the Government
Obligations 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 each Portfolio on an individual
basis depends upon the particular regulations of such states.
Each Portfolio bears all of its own expenses not specifically
assumed by PIMC. General expenses of the Fund not readily identifiable as
belonging to a portfolio of the Fund are allocated among all investment
portfolios by or under the direction of the Fund's Board of Directors in such
manner as the Board determines to be fair and equitable. Expenses borne by a
portfolio include, but are not limited to, the following (or a portfolio's share
of the following): (a) the cost (including brokerage commissions) of securities
purchased or sold by a portfolio and any losses incurred in connection
therewith; (b) fees payable to and expenses incurred on behalf of a portfolio by
PIMC; (c) expenses of organizing the Fund that are not attributable to a class
of the Fund; (d) certain of the filing fees and expenses relating to the
registration and qualification of the Fund and a portfolio's shares under
Federal and/or state securities laws and maintaining such registrations and
qualifications; (e) fees and salaries payable to the Fund's directors and
officers; (f) taxes (including any income or franchise taxes) and governmental
fees; (g) costs of any liability and other insurance or fidelity bonds; (h) any
costs, expenses or losses arising out of a liability of or claim for damages or
other relief asserted against the Fund or a portfolio for violation of any law;
(i) legal, accounting and auditing expenses, including legal fees of special
counsel for the independent directors; (j) charges of custodians and other
agents; (k) expenses of setting in type and printing prospectuses, statements of
additional information and supplements thereto for existing shareholders,
reports, statements, and confirmations to shareholders and proxy material that
are not attributable to a class; (l) costs of mailing prospectuses, statements
of additional
36
<PAGE>
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 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 with respect to the Money Market and Government Obligations
Money Market Portfolios by the shareholders of each Portfolio at a special
meeting held on December 22, 1989, as adjourned. The investment advisory
agreement was approved with respect to the Municipal Money Market Portfolio by
shareholders at a special meeting held June 10, 1992, as adjourned and the
sub-advisory agreement was approved with respect to the Municipal Money Market
Portfolio by Shareholders at a special meeting held on December 22, 1989. The
Advisory Contract was approved with respect to the New York Municipal Money
Market Portfolio by the Portfolio's shareholders at a special meeting of
shareholders held November 21, 1991, as adjourned. Each Advisory Contract is
terminable by vote of the Fund's Board of Directors or by the holders of a
majority of the outstanding voting securities of the relevant Portfolio, at any
time without penalty, on 60 days' written notice to PIMC or PNC Bank. Each of
the Advisory Contracts may also be terminated by PIMC or PNC Bank, respectively,
on 60 days' written notice to the Fund. Each of the Advisory Contracts
terminates automatically in the event of assignment thereof.
ADMINISTRATION AGREEMENTS. PFPC serves as the administrator to
the New York Municipal Money Market Portfolio pursuant to an Administration
Agreement dated November 5, 1991 and as the administrator to the Municipal Money
Market Portfolio pursuant to an Administration and Accounting Services Agreement
dated April 21, 1992 (together, the "Administration Agreements"). PFPC has
agreed to furnish to the Fund on behalf of the Municipal Money Market and New
York Municipal Money Market Portfolio statistical and research data,
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clerical, accounting, and bookkeeping services, and certain other services
required by the Fund. PFPC has also agreed to prepare and file various reports
with the appropriate regulatory agencies, and prepare materials required by the
SEC or any state securities commission having jurisdiction over the Fund.
The Administration Agreements provide that PFPC shall not be
liable for any error of judgment or mistake of law or any loss suffered by the
Fund or a Portfolio in connection with the performance of the agreement, except
a loss resulting from willful misfeasance, gross negligence or reckless
disregard by it of its duties and obligations thereunder. In consideration for
providing services pursuant to the Administration Agreements, PFPC receives a
fee of .10% of the average daily net assets of the Municipal Money Market and
New York Municipal Money Market Portfolios.
CUSTODIAN AND TRANSFER AGENCY AGREEMENTS. PNC Bank is
custodian of the Fund's assets pursuant to a custodian agreement dated August
16, 1988, as amended (the "Custodian Agreement"). Under the Custodian Agreement,
PNC Bank (a) maintains a separate account or accounts in the name of each
Portfolio (b) holds and transfers portfolio securities on account of each
Portfolio, (c) accepts receipts and makes disbursements of money on behalf of
each Portfolio, (d) collects and receives all income and other payments and
distributions on account of each Portfolio's portfolio securities and (e) makes
periodic reports to the Fund's Board of Directors concerning each Portfolio's
operations. PNC Bank is authorized to select one or more banks or trust
companies to serve as sub-custodian on behalf of the Fund, provided that PNC
Bank remains responsible for the performance of all its duties under the
Custodian Agreement and holds the Fund harmless from the acts and omissions of
any sub-custodian. For its services to the Fund under the Custodian Agreement,
PNC Bank receives a fee which is calculated based upon each Portfolio's average
daily gross assets as follows: $.25 per $1,000 on the first $50 million of
average daily gross assets; $.20 per $1,000 on the next $50 million of average
daily gross assets; and $.15 per $1,000 on average daily gross assets over $100
million, with a minimum monthly fee of $1,000 per Portfolio, exclusive of
transaction charges and out-of-pocket expenses, which are also charged to the
Fund.
PFPC, an affiliate of PNC Bank, serves as the transfer and
dividend disbursing agent for the Fund's Theta Classes pursuant to a Transfer
Agency Agreement dated November 5, 1991 and supplements dated November 5, 1991
(the "Transfer Agency Agreement"), under which PFPC (a) issues and redeems
shares of each of the Theta Classes, (b) addresses and mails all communications
by each Portfolio to record owners of shares of each such Class, including
reports to shareholders, dividend and distribution notices and proxy materials
for its meetings of shareholders, (c) maintains shareholder accounts and, if
requested, sub-accounts and (d) makes periodic reports to the Fund's Board of
Directors concerning the operations of each Theta 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
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receives a fee at the annual rate of $15.00 per account in each Portfolio for
orders which are placed via third parties and relayed electronically to PFPC,
and at an annual rate of $17.00 per account in each Portfolio for all other
orders, exclusive of out-of-pocket expenses and also receives a fee for each
redemption check cleared and reimbursement of its out-of-pocket expenses.
PFPC has and in the future may enter into additional
shareholder servicing agreements ("Shareholder Servicing Agreements") with
various dealers ("Authorized Dealers") for the provision of certain support
services to customers of such Authorized Dealers who are shareholders of the
Portfolios. Pursuant to the Shareholder Servicing Agreements, the Authorized
Dealers have agreed to prepare monthly account statements, process dividend
payments from the Fund on behalf of their customers and to provide sweep
processing for uninvested cash balances for customers participating in a cash
management account. In addition to the shareholder records maintained by PFPC,
Authorized Dealers may maintain duplicate records for their customers who are
shareholders of the Portfolios for purposes of responding to customer inquiries
and brokerage instructions. In consideration for providing such services,
Authorized Dealers may receive fees from PFPC. Such fees will have no effect
upon the fees paid by the Fund to PFPC.
DISTRIBUTION AGREEMENTS. Pursuant to the terms of a
distribution contract, dated as of April 10, 1991, and supplements dated as of
November 5, 1991 entered into by the Distributor and the Fund on behalf of each
of the Theta Classes, (collectively, the "Distribution Contracts") and separate
Plans of Distribution for each of the Theta Classes (collectively, the "Plans"),
all of which were adopted by the Fund in the manner prescribed by Rule 12b-1
under the 1940 Act, the Distributor will use its best efforts to distribute
shares of each of the Theta Classes. As compensation for its distribution
services, the Distributor will receive, pursuant to the terms of the
Distribution Contracts, a distribution fee, to be calculated daily and paid
monthly, at the annual rate set forth in the Prospectus. The Distributor
currently proposes to reallow up to all of its distribution payments to
broker/dealers for selling shares of each of the Portfolios based on a
percentage of the amounts invested by their customers.
Each of the Plans relating to the Theta Classes of the Money
Market, Municipal Money Market, Government Obligations Money Market and New York
Municipal Money Market Portfolios was most recently approved for continuation on
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 Plans or any agreements related to
the Plans ("12b-1 Directors"). Each of the Plans relating to the Theta Class of
the Money Market, Municipal Money Market, Government Obligations Money Market
and New York Municipal Money Market Portfolios was approved by the sole
shareholder of each Theta Class on November 5, 1991.
Among other things, each of the Plans provides that: (1) the
Distributor shall be required to submit quarterly reports to the directors of
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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 Theta 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 Theta 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.
The Fund believes that such Plans may benefit the Fund by
increasing sales of Shares. Mr. Reichman, a Director of the Fund, has an
indirect financial interest in the operation of the Plans by virtue of his
position as Chief Executive Officer and Secretary of the Distributor. Mr.
Sablowsky, a Director of the Fund, has an indirect interest in the operation of
the Plans by virtue of his position as Executive Vice President of Gruntal &
Co., Inc., a broker-dealer which sells the Fund's shares.
PORTFOLIO TRANSACTIONS
Each of the Portfolios intends to purchase securities with
remaining maturities of 397 calendar days or less, except for securities that
are subject to repurchase agreements (which in turn may have maturities of 397
calendar days or less), and except that each of the Money Market Portfolio,
Municipal Money Market Portfolio and New York Municipal Money Market Portfolio
may purchase variable rate securities with remaining maturities of 397 calendar
days or more so long as such securities comply with conditions established by
the SEC under which they may be considered to have remaining maturities of 397
calendar days or less. Because all Portfolios intend to purchase only securities
with remaining maturities of 397 calendar days or less, their portfolio turnover
rates will be relatively high. However, because brokerage commissions will not
normally be paid with respect to investments made by each such Portfolio, the
turnover rate should not adversely affect such Portfolio's net asset value or
net income. The Portfolios do not intend to seek profits through short term
trading.
Purchases of portfolio securities by each of the Portfolios
are made from dealers, underwriters and issuers; sales are made to dealers and
issuers. None of the Portfolios currently expects to incur any brokerage
commission expense on such transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however,
usually includes a profit to the dealer. Securities purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
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referred to as the underwriter's concession or discount. When securities are
purchased directly from or sold directly to an issuer, no commissions or
discounts are paid. It is the policy of such Portfolios to give primary
consideration to obtaining the most favorable price and efficient execution of
transactions. In seeking to implement the policies of such Portfolios, PIMC will
effect transactions with those dealers it believes provide the most favorable
prices and are capable of providing efficient executions. In no instance will
portfolio securities be purchased from or sold to the Distributor, PIMC or PNC
Bank or any affiliated person of the foregoing entities except to the extent
permitted by SEC exemptive order or by applicable law.
PIMC may seek to obtain an undertaking from issuers of
commercial paper or dealers selling commercial paper to consider the repurchase
of such securities from a Portfolio prior to their maturity at their original
cost plus interest (sometimes adjusted to reflect the actual maturity of the
securities), if it believes that a Portfolio's anticipated need for liquidity
makes such action desirable. Any such repurchase prior to maturity reduces the
possibility that the Portfolio would incur a capital loss in liquidating
commercial paper (for which there is no established market), especially if
interest rates have risen since acquisition of the particular commercial paper.
Investment decisions for each Portfolio and for other
investment accounts managed by PIMC or PNC Bank are made independently of each
other in the light of differing conditions. However, the same investment
decision may occasionally be made for two or more of such accounts. In such
cases, simultaneous transactions are inevitable. Purchases or sales are then
averaged as to price and allocated as to amount according to a formula deemed
equitable to each such account. While in some cases this practice could have a
detrimental effect upon the price or value of the security as far as a Portfolio
is concerned, in other cases it is believed to be beneficial to a Portfolio. A
Portfolio will not purchase securities during the existence of any underwriting
or selling group relating to such security of which PIMC or PNC Bank or any
affiliated person (as defined in the 1940 Act) thereof is a member except
pursuant to procedures adopted by the Fund's Board of Directors pursuant to Rule
10f-3 under the 1940 Act. Among other things, these procedures, which will be
reviewed by the Fund's directors annually, require that the commission paid in
connection with such a purchase be reasonable and fair, that the purchase be at
not more than the public offering price prior to the end of the first business
day after the date of the public offer, and that PIMC and PNC Bank not
participate in or benefit from the sale to a Portfolio.
PURCHASE AND REDEMPTION INFORMATION
The Fund reserves the right, if conditions exist which make
cash payments undesirable, to honor any request for redemption or repurchase of
a Portfolio's shares by making payment in whole or in part in securities chosen
by the Fund and valued in the same way as they would be valued for purposes of
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computing a Portfolio's net asset value. If payment is made in securities, a
shareholder may incur transaction costs in converting these securities into
cash. The Fund has elected, however, to be governed by Rule 18f-1 under the 1940
Act so that a Portfolio is obligated to redeem its shares solely in cash up to
the lesser of $250,000 or 1% of its net asset value during any 90-day period for
any one shareholder of a Portfolio.
Under the 1940 Act, a Portfolio may suspend the right of
redemption or postpone the date of payment upon redemption for any period during
which the New York Stock Exchange (the "NYSE") is closed (other than customary
weekend and holiday closings), or during which trading on said Exchange is
restricted, or during which (as determined by the SEC by rule or regulation) an
emergency exists as a result of which disposal or valuation of portfolio
securities is not reasonably practicable, or for such other periods as the SEC
may permit. (A Portfolio may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
VALUATION OF SHARES
The Fund intends to use its best efforts to maintain the net
asset value of each of the Portfolios at $1.00 per share. Net asset value per
share, the value of an individual share in a Portfolio, is computed by dividing
a Portfolio's net assets by the number of outstanding shares of a Portfolio. A
Portfolio's "net assets" equal the value of a Portfolio's investments and other
securities less its liabilities. The Fund's net asset value per share is
computed twice each day, as of 12:00 noon (Eastern Time) and as of 4:00 P.M.
(Eastern Time), on each Business Day. "Business Day" means each day, Monday
through Friday, when both the NYSE and the Federal Reserve Bank of Philadelphia
(the "FRB") are open. Currently, the NYSE IS closed on WEEKENDS AND 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 ON 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.
The Fund calculates the value of the portfolio securities of
each of the Portfolios by using the amortized cost method of valuation. Under
this method the market value of an instrument is approximated by amortizing the
difference between the acquisition cost and value at maturity of the instrument
on a straight-line basis over the remaining life of the instrument. The effect
of changes in the market value of a security as a result of fluctuating interest
rates is not taken into account. The market value of debt securities usually
reflects yields generally available on securities of similar quality. When such
yields decline, market values can be expected to increase, and when yields
increase, market values can be expected to decline. In addition, if a large
number of redemptions take place at a time when interest rates have increased, a
Portfolio may have to sell portfolio securities prior to maturity and at a price
which might not be as desirable.
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The amortized cost method of valuation may result in the value
of a security being higher or lower than its market price, the price a Portfolio
would receive if the security were sold prior to maturity. The Fund's Board of
Directors has established procedures for the purpose of maintaining a constant
net asset value of $1.00 per share for each Portfolio, which include a review of
the extent of any deviation of net asset value per share, based on available
market quotations, from the $1.00 amortized cost per share. Should that
deviation exceed 1/2 of 1% for a Portfolio, the Board of Directors will promptly
consider whether any action should be initiated to eliminate or reduce material
dilution or other unfair results to shareholders. Such action may include
redeeming shares in kind, selling portfolio securities prior to maturity,
reducing or withholding dividends, and utilizing a net asset value per share as
determined by using available market quotations.
Each of the Portfolios will maintain a dollar-weighted average
portfolio maturity of 90 days or less, will not purchase any instrument with a
deemed maturity under Rule 2a-7 of the 1940 Act greater than 397 calendar days,
will limit portfolio investments, including repurchase agreements (where
permitted), to those United States dollar-denominated instruments that PIMC
determines present minimal credit risks pursuant to guidelines adopted by the
Board of Directors, and PIMC will comply with certain reporting and
recordkeeping procedures concerning such credit determination. There is no
assurance that constant net asset value will be maintained. In the event
amortized cost ceases to represent fair value in the judgment of the Fund's
Board of Directors, the Board will take such actions as it deems appropriate.
In determining the approximate market value of portfolio
investments, the Fund may employ outside organizations, which may use a matrix
or formula method that takes into consideration market indices, matrices, yield
curves and other specific adjustments. This may result in the securities being
valued at a price different from the price that would have been determined had
the matrix or formula method not been used. All cash, receivables and current
payables are carried on the Fund's books at their face value. Other assets, if
any, are valued at fair value as determined in good faith by the Fund's Board of
Directors.
PERFORMANCE INFORMATION. Each of the Portfolio's current and
effective yields are computed using standardized methods required by the SEC.
The annualized yields for a Portfolio are computed by: (a) determining the net
change in the value of a hypothetical account having a balance of one share at
the beginning of a seven-calendar day period; (b) dividing the net change by the
value of the account at the beginning of the period to obtain the base period
return; and (c) annualizing the results (i.e., multiplying the base period
return by 365/7). The net change in the value of the account reflects the value
of additional shares purchased with dividends declared and all dividends
declared on both the original share and such additional shares, but does not
include realized gains and losses or unrealized appreciation and 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.
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Yield may fluctuate daily and does not provide a basis for
determining future yields. Because the yields of each Portfolio will fluctuate,
they cannot be compared with yields on savings account or other investment
alternatives that provide an agreed to or guaranteed fixed yield for a stated
period of time. However, yield information may be useful to an investor
considering temporary investments in money market instruments. In comparing the
yield of one money market fund to another, consideration should be given to each
fund's investment policies, including the types of investments made, lengths of
maturities of the portfolio securities, the method used by each fund to compute
the yield (methods may differ) and whether there are any special account charges
which may reduce the effective yield.
The yields on certain obligations, including the money market
instruments in which each Portfolio invests (such as commercial paper and bank
obligations), are dependent on a variety of factors, including general money
market conditions, conditions in the particular market for the obligation, the
financial condition of the issuer, the size of the offering, the maturity of the
obligation and the ratings of the issue. The ratings of Moody's and S&P
represent their respective opinions as to the quality of the obligations they
undertake to rate. Ratings, however, are general and are not absolute standards
of quality. Consequently, obligations with the same rating, maturity and
interest rate may have different market prices. In addition, subsequent to its
purchase by a Portfolio, an issue may cease to be rated or may have its rating
reduced below the minimum required for purchase. In such an event, PIMC will
consider whether a Portfolio should continue to hold the obligation.
From time to time, in advertisements or in reports to
shareholders, the yields of a Portfolio may be quoted and compared to those of
other mutual funds with similar investment objectives and to stock or other
relevant indices. For example, the yield of a Portfolio may be compared to the
Donoghue's Money Fund Average, which is an average compiled by IBC/Donoghue's
MONEY FUND REPORT(R) of Holliston, MA 01746, a widely recognized independent
publication that monitors the performance of money market funds, or to the data
prepared by Lipper Analytical Services, Inc., a widely-recognized independent
service that monitors the performance of mutual funds.
TAXES
The following is only a summary of certain additional tax
considerations generally affecting the Portfolios and their shareholders that
are not described in the Fund's Prospectus. No attempt is made to present a
detailed explanation of the tax treatment of the Portfolios or their
shareholders, and the discussion here and in the Prospectus is not intended as a
substitute for careful tax planning. Investors are urged to consult their tax
advisers with specific reference to their own tax situation.
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Each Portfolio has elected to be taxed as a regulated
investment company under Part I of Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). As a regulated investment company, each Portfolio
is exempt from Federal income tax on its net investment income and realized
capital gains which it distributes to shareholders, provided that it distributes
an amount equal to the sum of (a) at least 90% of its investment company taxable
income (net investment income and the excess of net short-term capital gain over
net long-term capital loss), if any, for the year and (b) at least 90% of its
net tax-exempt interest income, if any, for the year (the "Distribution
Requirement") and satisfies certain other requirements of the Code that are
described below. Distributions of investment company taxable income and net
tax-exempt interest income made during the taxable year or, under specified
circumstances, within twelve months after the close of the taxable year will
satisfy the Distribution Requirement. The Distribution Requirement for any year
may be waived if a regulated investment company establishes to the satisfaction
of the Internal Revenue Service that it is unable to satisfy the Distribution
Requirement by reason of distributions previously made for the purpose of
avoiding liability for Federal excise tax (discussed below).
In addition to satisfaction of the Distribution Requirement
each Portfolio must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans and gains from the
sale or other disposition of stock or securities or foreign currencies, or from
other income derived with respect to its business of investing in such stock,
securities, or currencies (the "Income Requirement") and derive less than 30% of
its gross income from the sale or other disposition of any of the following
investments if such investments were held for less than three months: (a) stock
or securities (as defined in Section 2(a)(36) of the 1940 Act); (b) options,
futures or forward contracts (other than options, futures or forward contracts
on foreign currencies); and (c) foreign currencies (or options, futures or
forward contracts on foreign currencies) but only if such currencies (or
options, futures or forward contracts) are not directly related to the regulated
investment company's principal business of investing in stock or securities (or
options and futures with respect to stocks or securities) (the "Short-Short Gain
Test"). Interest (including original issue discount and, in the case of debt
securities bearing taxable interest income "accrued market discount") received
by a Portfolio at maturity or on disposition of a security held for less than
three months will not be treated as gross income derived from the sale or other
disposition of such security for purposes of the Short-Short Gain Test. However,
any other income which is attributable to realized market appreciation will be
treated as gross income from the sale or other disposition of securities for
this purpose.
Income derived by a regulated investment company from a
partnership or trust will satisfy the Income Requirement only to the extent such
income is attributable to items of income of the partnership or trust that would
satisfy the Income Requirement if they were realized by a regulated investment
company in the same manner as realized by the partnership or trust.
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In addition to the foregoing requirements, at the close of
each quarter of its taxable year, at least 50% of the value of each Portfolio's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which a Portfolio has not invested more than 5% of the value of
its total assets in securities of such issuer and as to which a Portfolio does
not hold more than 10% of the outstanding voting securities of such issuer), and
no more than 25% of the value of each Portfolio's total assets may be invested
in the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more issuers
which such Portfolio controls and which are engaged in the same or similar
trades or businesses (the "Asset Diversification Requirement").
The Internal Revenue Service has taken the position, in
informal rulings issued to other taxpayers, that the issuer of a repurchase
agreement is the bank or dealer from which securities are purchased. The Money
Market Portfolio, Government Obligations Money Market Portfolio and New York
Municipal Money Market Portfolio will not enter into repurchase agreements with
any one bank or dealer if entering into such agreements would, under the
informal position expressed by the Internal Revenue Service, cause any of them
to fail to satisfy the Asset Diversification Requirement.
The Municipal Money Market Portfolio and the New York
Municipal Money Market Portfolio are designed to provide investors with current
tax-exempt interest income. Exempt interest dividends distributed to
shareholders of the Portfolios are not included in the shareholder's gross
income for regular Federal income tax purposes. In order for the Municipal Money
Market Portfolio and New York Municipal Money Market Portfolio to pay exempt
interest dividends during any taxable year, at the close of each fiscal quarter
at least 50% of the value of each such Portfolio must consist of exempt interest
obligations.
All shareholders required to file a Federal income tax return
are required to report the receipt of exempt interest dividends and other exempt
interest on their returns. Moreover, while such dividends and interest are
exempt from regular Federal income tax, they may be subject to alternative
minimum tax as described in the Prospectus. By operation of the adjusted current
earnings alternative minimum tax adjustment, exempt interest income received by
certain corporations may be taxed at an effective rate of 15%. In addition,
corporate investors should note that, under the Superfund Amendments and
Reauthorization Act of 1986, an environmental tax is imposed for taxable years
beginning after 1986 and before 1996 at the rate of 0.12% on the excess of the
modified alternative minimum taxable income of corporate taxpayers over $2
million, regardless of whether such taxpayers are liable for alternative minimum
tax. Receipt of exempt interest dividends may result in collateral Federal
income tax consequences to certain other taxpayers, including financial
institutions, property and casualty insurance companies, individual recipients
of Social Security or Railroad Retirement benefits, and foreign
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corporations engaged in a trade or business in the United States. Prospective
investors should consult their own tax advisors as to such consequences.
Neither the Municipal Money Market Portfolio nor the New York
Municipal Money Market Portfolio may be an appropriate investment for entities
which are "substantial users" of facilities financed by private activity bonds
or "related persons" thereof. "Substantial user" is defined under U.S. Treasury
Regulations to include a non exempt person who regularly uses a part of such
facilities in his trade or business and (a) whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenue derived by all users of such facilities, (b) who occupies more
than 5% of the entire usable area of such facilities, or (c) for whom such
facilities or a part thereof were specifically constructed, reconstructed or
acquired. "Related persons" include certain related natural persons, affiliated
corporations, a partnership and its partners and an S Corporation and its
shareholders.
Each of the Money Market Portfolio, Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio may acquire standby
commitments with respect to Municipal Obligations held in its portfolio and will
treat any interest received on Municipal Obligations subject to such standby
commitments as tax-exempt income. In Rev. Rul. 82-144, 1982-2 C.B. 34, the
Internal Revenue Service held that a mutual fund acquired ownership of municipal
obligations for Federal income tax purposes, even though the fund simultaneously
purchased "put" agreements with respect to the same municipal obligations from
the seller of the obligations. The Fund will not engage in transactions
involving the use of standby commitments that differ materially from the
transaction described in Rev. Rul. 82-144 without first obtaining a private
letter ruling from the Internal Revenue Service or the opinion of counsel.
Interest on indebtedness incurred by a shareholder to purchase
or carry shares of the Municipal Money Market Portfolio or the New York
Municipal Money Market Portfolio is not deductible for income tax purposes if
(as expected) the Municipal Money Market Portfolio or the New York Municipal
Money Market Portfolio distributes exempt interest dividends during the
shareholder's taxable year.
Distributions of net investment income received by a
Portfolio from investments in debt securities (other than interest on tax-exempt
Municipal Obligations that is distributed as exempt interest dividends) and any
net realized short-term capital gains distributed by a Portfolio will be taxable
to shareholders as ordinary income and will not be eligible for the dividends
received deduction for corporations. Although each of the Municipal Money Market
Portfolio and New York Municipal Money Market Portfolio generally does not
expect to receive net investment income other than Tax-Exempt Interest and AMT
Interest, up to 20% of the net assets of each such Portfolio may be invested in
Municipal Obligations that do not bear Tax-Exempt Interest or AMT Interest, and
any taxable income recognized by such Portfolio will be distributed and taxed to
its shareholders.
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While none of the Portfolios expects to realize long-term
capital gains, any net realized long-term capital gains, such as gains from the
sale of debt securities and realized market discount on tax-exempt Municipal
Obligations, will be distributed annually. None of the Portfolios will have tax
liability with respect to such gains and the distributions will be taxable to
Portfolio shareholders as long-term capital gains, regardless of how long a
shareholder has held Portfolio shares. The aggregate amount of distributions
designated by each Portfolio as capital gain dividends may not exceed the net
capital gain of such Portfolio for any taxable year, determined by excluding any
net capital loss or net long-term capital loss attributable to transactions
occurring after October 31 of such year and by treating any such loss as if it
arose on the first day of the following taxable year. Such distributions will be
designated as a capital gains dividend in a written notice mailed by the Fund to
shareholders not later than 60 days after the close of each Portfolio's
respective taxable year.
Investors should note that changes made to the Code by the Tax
Reform Act of 1986 and subsequent legislation have not entirely eliminated the
distinctions in the tax treatment of capital gain and ordinary income
distributions. The nominal maximum marginal rate on ordinary income for
individuals, trusts and estates is currently 31%, but for individual taxpayers
whose adjusted gross income exceeds certain threshold amounts (that differ
depending on the taxpayer's filing status) in taxable years beginning before
1996, provisions phasing out personal exemptions and limiting itemized
deductions may cause the actual maximum marginal rate to exceed 31%. The maximum
rate on the net capital gain of individuals, trusts and estates, however, is in
all cases 28%. Capital gains and ordinary income of corporate taxpayers are
taxed at a nominal maximum rate of 34% (an effective marginal rate of 39%
applies in the case of corporations having taxable income between $100,000 and
$335,000).
If for any taxable year any Portfolio does not qualify as a
regulated investment company, all of its taxable income will be subject to tax
at regular corporate rates without any deduction for distributions to
shareholders, and all distributions will be taxable as ordinary dividends
(including amounts derived from interest on Municipal Obligations in the case of
the Municipal Money Market Portfolio and the New York Municipal Money Market
Portfolio) to the extent of such Portfolio's current and accumulated earning and
profits. Such distributions will be eligible for the dividends received
deduction in the case of corporate shareholders.
The Code imposes a non-deductible 4% excise tax on regulated
investment companies that do not distribute with respect to each calendar year
an amount equal to 98 percent of their ordinary income for the calendar year
plus 98 percent of their capital gain net income for the 1-year period ending on
October 31 of such calendar year. The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a company is treated
as having distributed any amount on which it is subject to income tax for any
taxable year ending in such calendar year. Because each
48
<PAGE>
Portfolio intends to distribute all of its taxable income currently, no
Portfolio anticipates incurring any liability for this excise tax.
The Fund will be required in certain cases to withhold and
remit to the United States Treasury 31% of dividends (other than exempt interest
dividends) paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the Internal Revenue Service for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that he is not subject to backup withholding or that he is an "exempt
recipient."
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this Statement of Additional Information. Future
legislative or administrative changes or court decisions may significantly
change the conclusions expressed herein, and any such changes or decisions may
have a retroactive effect with respect to the transactions contemplated herein.
Although each Portfolio expects to qualify as a "regulated
investment company" and to be relieved of all or substantially all Federal
income taxes, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located or in which it is otherwise deemed to be
conducting business, each Portfolio may be subject to the tax laws of such
states or localities.
DESCRIPTION OF SHARES
The Fund has authorized capital of thirty billion shares of
Common Stock, $.001 par value per share, of which 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
49
<PAGE>
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, 50
million shares are classified as Class X Common Stock (U.S. Core Equity), 50
million shares are classified as Class Y Common Stock (U.S. Core Fixed Income),
50 million shares are classified as Class Z Common Stock (Global Fixed Income),
50 million shares are classified as Class AA Common Stock (Municipal Bond), 50
million shares are classified as Class BB Common Stock (BEA Balanced), 50
million shares are classified as Class CC Common Stock (Short Duration), 100
million shares are classified as Class DD COMMON STOCK , 100 million shares
are classified as Class EE COMMON STOCK, 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 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
50
<PAGE>
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 Classes Theta 1,
Theta 2, Theta 3 and Theta 4 Common Stock constitute the Theta Family Classes.
Under the Fund's charter, the Board of Directors has the power to classify or
reclassify any unissued shares of Common Stock from time to time.
The classes of Common Stock have been grouped into SIXTEEN
separate "families": the RBB Family, the Cash Preservation Family, the Sansom
Street Family, the Bedford Family, the Bradford Family, the BEA Family, THE N/I
FAMILY, THE BOSDTON 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 Cash Preservation Family represents interests in the
Money Market Portfolio and Municipal Money Market Portfolio; the Bedford Family
represents interests in the Money Market, Municipal Money Market, Government
Obligations 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 INTERESTS IN ONE NON-MONEY MARKET PORTFOLIO; the Janney Montgomery
Scott Money Funds Family and Beta, Gamma, Delta, Epsilon, Zeta and Eta Families
represents interest in the Money Market, Municipal Money Market, Governmental
Obligations Money Market and New York Municipal Money Market Portfolios.
ADDITIONAL INFORMATION CONCERNING FUND SHARES
The Fund does not currently intend to hold annual meetings of
shareholders except as required by the 1940 Act or other applicable law. The
Fund's amended By-Laws provide that shareholders owning at least ten percent of
the outstanding shares of all classes of Common Stock of the Fund have the right
to call for a meeting of shareholders to consider the removal of one or more
directors. To the extent required by law, the Fund will assist in shareholder
communication in such matters.
51
<PAGE>
As stated in the Prospectus, holders of shares of each class
of the Fund will vote in the aggregate and not by class on all matters, except
where otherwise required by law. Further, shareholders of the Fund will vote in
the aggregate and not by portfolio except as otherwise required by law or when
the Board of Directors determines that the matter to be voted upon affects only
the interests of the shareholders of a particular portfolio. Rule 18f-2 under
the 1940 Act provides that any matter required to be submitted by the provisions
of such Act or applicable state law, or otherwise, to the holders of the
outstanding securities of an investment company such as the Fund shall not be
deemed to have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each portfolio affected by the matter.
Rule 18f-2 further provides that a portfolio shall be deemed to be affected by a
matter unless it is clear that the interests of each portfolio in the matter are
identical or that the matter does not affect any interest of the portfolio.
Under the Rule the approval of an investment advisory agreement or any change in
a fundamental investment policy would be effectively acted upon with respect to
a portfolio only if approved by the holders of a majority of the outstanding
voting securities of such portfolio. However, the Rule also provides that the
ratification of the selection of independent public accountants, the approval of
principal underwriting contracts and the election of directors are not subject
to the separate voting requirements and may be effectively acted upon by
shareholders of an investment company voting without regard to portfolio.
Notwithstanding any provision of Maryland law requiring a
greater vote of shares of the Fund's common stock (or of any class voting as a
class) in connection with any corporate action, unless otherwise provided by law
(for example by Rule 18f-2 discussed above), or by the Fund's Articles of
Incorporation, the Fund may take or authorize such action upon the favorable
vote of the holders of more than 50% of all of the outstanding shares of Common
Stock voting without regard to class (or portfolio).
MISCELLANEOUS
COUNSEL. The law firm of Ballard Spahr Andrews & Ingersoll,
1735 Market Street, 51st Floor, Philadelphia, Pennsylvania 19103, serves as
counsel to the Fund, PIMC, PNC Bank and PFPC. The law firm of Drinker Biddle &
Reath, 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 the Statements of
Additional Information of the Fund relating to the RBB Family, the Cash
Preservation Classes, the Sansom Street Family, the Bedford Family and the
Bradford Family which have been audited by Coopers & Lybrand L.L.P. as set forth
in their reports, which also appear in the Statements of Additional Information
of the Fund relating to the RBB Family, the Cash Preservation
52
<PAGE>
Classes, the Sansom Street Family, the Bedford Family and the Bradford Family,
are incorporated herein and made a part hereof in reliance upon the reports 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.
53
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
RBB Money Market Portfolio Luanne M. Garvey and Robert J. Garvey 12.7
(Class E) 2729 Woodland Avenue
Trooper, PA 19403
HAROLD T. Erfer 13.0
414 Charles Lane
Wynnewood, PA 19096
KAREN M. McElhinny and Contribution Account 16.9
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 Levine 29.6
67 Lanes Pond Road
Howell, NJ 07731
RBB Municipal Money Market William B. Pettus Trust 11.4
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 Market JEWISH Family and Children's 56.8
Portfolio Agency of Philadelphia
(Class G) Capital Campaign
Attn: S. Ramm
1610 Spruce Street
Philadelphia, PA 19103
LYNDA R. Succ Trustee for in Trust under 12.3
The Lynda R. Campbell Caring Trust
935 Rutger Street
St. Louis, MO 63104
THERESA M. PALMER 6.8
5731 N. 4TH STREET
PHILADELPHIA, PA 19120
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
CASH Preservation Municipal Money Kenneth Farwell and Valerie 11.1
Market Portfolio Farwell Jt. Ten
(Class H) 3854 Sullivan
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 DIEDERICH 6.1
1003 LINDENMAN
DES PERES, MO 63131
MARCELLA L. Haugh Caring TR DTD 8/12/91 15.3
40 Plaza Square
Apt. 202
St. Louis, MO 63101
EMIL HUNTER AND MARY J. HUNTER 8.2
428 W. JEFFERSON
KIRKWOOD, MO 63122
GWENDOYLN HAYNES 5.2
2757 GEYER
ST. LOUIS, MO
SAVANNAH THOMAS Trust 5.2
230 MADISON AVE.
ROCK HILL, MD 63119
SANSOM Street Money Market Portfolio Wasner & Co. 16.6
(Class I) FAO Paine Webber and Managed 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
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BRADFORD MUNICIPAL MONEY (CLASS R) J.C. BRADFORD & CO. 100
330 COMMERCE STREET
NASHVILLE, TN 37201
BRADFORD GOVERNMENT OBLIGATIONS J.C. BRADFORD & CO. 100
MONEY (CLASS S) 330 COMMERCE STREET
NASHVILLE, TN 37201
BEA INTERNATIONAL EQUITY BLUE CROSS & BLUE SHIELD OF MASSACHUSETTS INC. 5.1
(CLASS T) RETIREMENT Income TRUST
100 SUMMER STREET
BOSTON, MA 02310
INVEST COMM OF MAFCO HOLD INC. MT
625 MADISON AVE., 4TH FLOOR 5.0
NEW YORK, NY 10022
BEA HIGH YIELD Portfolio TEMPLE Inland Master Retirement Trust 10.2
(Class U) 303 South Temple Drive
Diboll, TX 75941
GUENTER FULL TRST MICHELIN NORTH AMERICA INC. 16.7
MASTER TRUST
P. O. BOX 19001
GREENVILLE, SC 29602-9001
FLOUR CORPORATION MASTER RETIREMENT TRUST 9.4
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 PLAN 13.3
1525 HOWE STREET
RACINE, WI 53403
GCIV EMPLOYER RETIREMENT FUND
8650 FLAIR DRIVE 6.3
E. MONTE, CA 96731-3011
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA Emerging Markets Equity Wachovia Bank North Carolina Trust for Carolina 15.7
Portfolio (Class V) Power & Light 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 RETIREMENT SYSTEM 10.8
124 W. CAPITOL AVENUE
LITTLE ROCK, AR 72201
NORTHERN Trust 12.9
Trustee for Pillsbury
P.O. Box 92956
Chicago, IL 60675
AMHERST H. Wilder Foundation 5.9
919 Lafond Avenue
St. Paul, MN 55104
BEA US Core Equity Portfolio Bank of New York 45.3
(Class X) Trust APU Buckeye Pipeline
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
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
BEA US Core Fixed Income Portfolio New England UFCW & Employers' Pension Fund Board 24.5
(Class Y) of Trustees
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
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 Portfolio Sunkist Master Trust 36.0
(Class Z) 14130 Riverside Drive
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
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 Portfolio William A. Marquard 37.4
(Class AA) 2199 Maysville Rd.
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 5.7
TENANTS IN COMMON
1304 STAGECOACH ROAD, S.E.
ALBUQUERQUE, NM 87123
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
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
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 LP 18.7
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 FUND (CLASS HH) CHARLES SCHWAB & CO. INC. 24.4
SPECIAL CUSTODY ACCOUNT FOR THE EXCLUSIVE BENEFIT
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104
JANNEY Montgomery Scott Money Market JANNEY Montgomery Scott 100
Portfolio 1801 Market Street
(Class JANNEY MONEY MARKET) Philadelphia, PA 19103-1675
Janney Montgomery Scott Municipal JANNEY Montgomery Scott 100
Money Market Portfolio 1801 Market Street
(Class JANNEY MUNICIPAL MONEY Philadelphia, PA 19103-1675
MARKET)
Janney Montgomery Scott Government JANNEY Montgomery Scott 100
Obligations Money Market Portfolio 1801 Market Street
(Class JANNEY GOVERNMENT Philadelphia, PA 19103-1675
OBLIGATIONS MONEY)
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
PORTFOLIO NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Janney Montgomery Scott New York JANNEY Montgomery Scott 100
Municipal Money Market Portfolio 1801 Market Street
(Class JANNEY N.Y. MUNICIPAL MONEY) Philadelphia, PA 19103-1675
</TABLE>
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.
61
<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.
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.
A-1
<PAGE>
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
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Included in Part A of the Registration Statement:
(I) Per Share Data and Ratios for the periods ended
August 31, 1989 through August 31, 1996 for:
(A) RBB FAMILY CLASSES (GOVERNMENT SECURITIES, MONEY MARKET,
AND MUNICIPAL MONEY MARKET PORTFOLIOS)
(B) CASH PRESERVATION CLASSES (MONEY MARKET AND
MUNICIPAL MONEY MARKET PORTFOLIOS)
(C) SANSOM STREET CLASS (MONEY MARKET PORTFOLIO)
(D) BEDFORD CLASSES (MONEY MARKET, MUNICIPAL MONEY MARKET,
GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS)
(E) BEDFORD CLASSES (MONEY MARKET, MUNICIPAL MONEY MARKET
AND GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIOS)
(F) BEDFORD CLASS (MUNICIPAL MONEY MARKET PORTFOLIO)
(G) BEDFORD CLASS (GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO)
(H) BEDFORD CLASS (MONEY MARKET PORTFOLIO)
(I) BRADFORD CLASS (MUNICIPAL MONEY MARKET PORTFOLIO)
(J) BRADFORD CLASS (GOVERNMENT OBLIGATIONS MONEY MARKET
PORTFOLIO)
(K) JANNEY CLASSES (MONEY MARKET, MUNICIPAL MONEY MARKET,
GOVERNMENT OBLIGATIONS MONEY MARKET AND NEW YORK
MUNICIPAL MONEY MARKET PORTFOLIOS)
(II) PER SHARE DATA AND RATIOS FOR THE PERIODS ENDED
AUGUST 31, 1989 THROUGH AUGUST 31, 1993 FOR THE SANSOM
STREET CLASS REPRESENTING INTERESTS IN THE MUNICIPAL
MONEY MARKET PORTFOLIO.
(III) PER SHARE DATA AND RATIOS FOR THE PERIODS ENDED
AUGUST 31, 1989 THROUGH AUGUST 31, 1991
FOR THE SANSOM STREET CLASS REPRESENTING INTERESTS IN
THE GOVERNMENT MONEY MARKET PORTFOLIO (THIS CLASS OF
SHARES CEASED OPERATIONS ON DECEMBER 4, 1991).
(IV) No Per Share Data and Ratios is given for the fiscal year
ended August 31, 1996 as no such shares had been sold to the
public for:
(A) BETA Classes
(B) GAMMA Classes
<PAGE>
(C) DELTA CLASSES
(D) EPSILON CLASSES
(E) ZETA CLASSES
(F) ETA CLASSES
(G) THETA CLASSES
(H) SANSOM STREET CLASS MUNICIPAL MONEY MARKET
(I) SANSOM STREET CLASS GOVERNMENT OBLIGATION MONEY MARKET
Included in Part B of the Registration Statement:
GOVERNMENT SECURITIES PORTFOLIO
Report of Independent Accountants.
Statement of Net Assets as of August 31, 1996.
STATEMENTS of Operations FOR THE PERIOD ENDED
AUGUST 31, 1996.
STATEMENTS OF CHANGES IN NET ASSETS for the fiscal
year ended August 31, 1995 AND FOR FISCAL
YEAR ENDED AUGUST 31, 1996.
SELECTED PER SHARE DATA AND RATIOS FOR THE PERIOD
AUGUST 1, 1991 (COMMENCEMENT OF OPERATIONS) THROUGH
AUGUST 31, 1991, AND FOR THE FISCAL YEARS ENDED
AUGUST 31, 1992 THROUGH AUGUST 31, 1996.
MONEY MARKET PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS.
STATEMENT OF NET ASSETS AS OF AUGUST 31, 1996.
STATEMENTS OF OPERATIONS FOR THE PERIOD ENDED
AUGUST 31, 1996.
Statement of Changes in Net Assets for the fiscal
year ended August 31, 1995 and for fiscal year ended
August 31, 1996.
Selected Per Share Data and Ratios FOR EACH OF
RBB, CASH PRESERVATION, SANSOM STREET, ROBERTSON STEPHENS
AND BEDFORD CLASSES FOR THE PERIOD SEPTEMBER 30, 1988
(COMMENCEMENT OF OPERATIONS) TO AUGUST 31, 1989 AND FOR
THE FISCAL YEARS ENDED AUGUST 31, 1990 THROUGH
AUGUST 31, 1996 AND JANNEY CLASS FOR THE PERIOD
JUNE 12, 1995 (COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31, 1996.
MUNICIPAL MONEY MARKET PORTFOLIO
REPORT OF INDEPENDENT ACCOUNTANTS.
STATEMENT OF NET ASSETS AS OF AUGUST 31, 1995.
STATEMENT OF OPERATIONS FOR THE PERIOD ENDED AUGUST
31, 1995.
STATEMENT OF CHANGES IN NET ASSETS FOR THE FISCAL
YEAR ENDED AUGUST 31, 1994 AND FOR FISCAL YEAR ENDED
AUGUST 31, 1995.
SELECTED PER SHARE DATA AND RATIOS FOR EACH OF RBB,
CASH PRESERVATION, SANSOM STREET*, AND
BEDFORD FOR THE PERIOD SEPTEMBER 30, 1988
(COMMENCEMENT OF OPERATIONS)
2
<PAGE>
TO AUGUST 31, 1989 AND FOR THE FISCAL YEARS ENDED
AUGUST 31, 1990 THROUGH AUGUST 31, 1996 BRADFORD
CLASS FOR THE PERIOD JANUARY 10, 1992
(COMMENCEMENT OF OPERATIONS) TO AUGUST 31,
1992 AND FOR THE FISCAL YEARS ENDED AUGUST
31, 1993 THROUGH AUGUST 31, 1996 AND JANNEY
CLASS FOR THE PERIOD JUNE 12, 1995
(COMMENCEMENT OF OPERATIONS) THROUGH AUGUST 31, 1995.
* NO PER SHARE DATA AND RATIOS IS GIVEN FOR
THE SANSOM STREET CLASS AS NO SHARES OF SUCH
CLASS HAD BEEN SOLD TO THE PUBLIC DURING
FISCAL YEAR ENDED AUGUST 31, 1996.
GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO
Report of Independent Accountants.
Statement of Net Assets as of August 31, 1996.
Statement of Operations for the PERIOD ended
August 31, 1996.
Statement of Changes in Net Assets for the fiscal
year ended August 31, 1995 and for fiscal year ended
August 31, 1996.
Selected Per Share Data and Ratios FOR EACH OF
SANSOM STREET*, BEDFORD AND BRADFORD CLASSES FOR THE
PERIOD OCTOBER 18, 1988 (COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31, 1989 AND FOR FISCAL YEARS
ENDED AUGUST 31, 1990 THROUGH AUGUST 31, 1996 AND JANNEY
CLASS FOR THE PERIOD JUNE 12, 1995 (COMMENCEMENT OF
OPERATIONS) THROUGH AUGUST 31, 1996.
* NO PER SHARE DATA AND RATIOS IS GIVEN FOR
THE SANSOM STREET CLASS AS NO SHARES OF SUCH
CLASS HAD BEEN SOLD TO THE PUBLIC DURING
FISCAL YEAR ENDED AUGUST 31, 1995.
NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO
Report of Independent Accountants. Statement
of Net Assets as of August 31, 1996.
Statement of Operations for the period
ended August 31, 1996.
Statement of Changes in Net Assets for the fiscal
year ended August 31, 1995 and for fiscal year ended
August 31, 1996.
Selected Per Share Data and Ratios FOR THE PERIOD
JULY 13, 1990 (COMMENCEMENT OF OPERATIONS)
THROUGH AUGUST 31, 1990 AND FOR FISCAL YEARS
ENDED AUGUST 31, 1990 THROUGH AUGUST 31,
1996 AND JANNEY CLASS FOR THE PERIOD JUNE
12, 1995 (COMMENCEMENT OF OPERATIONS)
THROUGH August 31, 1996.
3
<PAGE>
Notes to Financial Statements
(b) Exhibits: See Note #
----------
(1) (a) Articles of Incorporation of Registrant 1
(b) Articles Supplementary of Registrant. 1
(c) Articles of Amendment to Articles of
Incorporation of Registrant. 2
(d) Articles Supplementary of Registrant. 2
(e) Articles Supplementary of Registrant. 5
(f) Articles Supplementary of Registrant. 6
(g) Articles Supplementary of Registrant. 9
(h) Articles Supplementary of Registrant. 10
(i) Articles Supplementary of Registrant. 14
(j) Articles Supplementary of Registrant. 14
(k) Articles Supplementary of Registrant. 19
(l) Articles Supplementary of Registrant. 19
(m) Articles Supplementary of Registrant. 19
(n) Articles Supplementary of Registrant. 19
(o) Articles Supplementary of Registrant. 20
(p) Articles Supplementary of Registrant. 23
(q) Articles Supplementary of Registrant. 25
(2) Amended By-Laws adopted August 16, 1988. 3
(a) Amendment to By-Laws adopted July 25, 1989. 4
(b) By-Laws amended through October 24, 1989. 5
(c) By-Laws amended through April 24, 1996. 23
(3) None.
4
<PAGE>
(4) Specimen Certificates
a) SafeGuard Equity Growth and Income Shares 3
b) SafeGuard Fixed Income Shares 3
c) SafeGuard Balanced Shares 3
d) SafeGuard Tax-Free Shares 3
e) SafeGuard Money Market Shares 3
f) SafeGuard Tax-Free Money Market Shares 3
g) Cash Preservation Money Market Shares 3
h) Cash Preservation Tax-Free Money
Market Shares 3
i) Sansom Street Money Market Shares 3
j) Sansom Street Tax-Free Money Market Shares 3
k) Sansom Street Government Obligations Money 3
Market Shares
l) Bedford Money Market Shares 3
m) Bedford Tax-Free Money Market Shares 3
n) Bedford Government Obligations Money Market 3
Shares
o) Bedford New York Municipal Money
Market Shares 5
p) SafeGuard Government Securities Shares 5
q) Income Opportunities High Yield Bond Shares 6
r) Bradford Tax-Free Money Market Shares 8
s) Bradford Government Obligations Money Market 8
Shares
t) Alpha 1 Money Market Shares 8
u) Alpha 2 Tax-Free Money Market Shares 8
v) Alpha 3 Government Obligations Money Market 8
Shares
w) Alpha 4 New York Municipal Money Market 8
Shares
x) Beta 1 Money Market Shares 8
y) Beta 2 Tax-Free Money Market Shares 8
z) Beta 3 Government Obligations Money Market 8
Shares
aa) Beta 4 New York Municipal Money Market Shares 8
bb) Gamma 1 Money Market Shares 8
cc) Gamma 2 Tax-Free Money Market Shares 8
dd) Gamma 3 Government Obligations Money Market 8
Shares
ee) Gamma 4 New York Municipal Money Market Shares 8
ff) Delta 1 Money Market Shares 8
gg) Delta 2 Tax-Free Money Market Shares 8
hh) Delta 3 Government Obligations Money Market 8
Shares
ii) Delta 4 New York Municipal Money Market Shares 8
jj) Epsilon 1 Money Market Shares 8
kk) Epsilon 2 Tax-Free Money Market Shares 8
ll) Epsilon 3 Government Obligations Money 8
Market Shares
5
<PAGE>
mm) Epsilon 4 New York Municipal Money 8
Market Shares
nn) Zeta 1 Money Market Shares 8
oo) Zeta 2 Tax-Free Money Market Shares 8
pp) Zeta 3 Government Obligations Money Market Shares 8
qq) Zeta 4 New York Municipal Money Market Shares
rr) Eta 1 Money Market Shares 8
ss) Eta 2 Tax-Free Money Market Shares 8
tt) Eta 3 Government Obligations Money Market Shares 8
uu) Eta 4 New York Municipal Money Market Shares 8
vv) Theta 1 Money Market Shares 8
ww) Theta 2 Tax-Free Money Market Shares 8
xx) Theta 3 Government Obligations Money Market Shares 8
yy) Theta 4 New York Municipal Money Market Shares 8
zz) BEA International Equity Shares 9
a1) BEA Strategic Fixed Income Shares 9
a2) BEA Emerging Markets Equity Shares 9
a3) Laffer/Canto Equity Shares 12
a4) BEA U.S. Core Equity Shares 13
a5) BEA U.S. Core Fixed Income Shares 13
a6) BEA Global Fixed Income Shares 13
a7) BEA Municipal Bond Shares 13
a8) BEA Balanced Shares 16
a9) BEA Short Duration Shares 16
a10) Warburg Growth & Income Shares 18
a11) Warburg Balanced Shares 18
(5) (a) Investment Advisory Agreement (Money) 3
between Registrant and Provident
Institutional Management Corporation,
dated as of August 16, 1988.
(b) Sub-Advisory Agreement (Money) between 3
Provident Institutional Management
Corporation and Provident National Bank,
dated as of August 16, 1988.
(c) Investment Advisory Agreement 3
(Tax -Free Money) between Registrant and
Provident Institutional Management
Corporation, dated as of August 16, 1988.
(d) Sub-Advisory Agreement (Tax-Free Money) 3
between Provident Institutional Management
Corporation and Provident National Bank,
dated as of August 16, 1988.
6
<PAGE>
(e) Investment Advisory Agreement 3
(Government Money) between Registrant and
Provident Institutional Management
Corporation, dated as of August 16, 1988.
(f) Sub-Advisory Agreement (Government Money) 3
between Provident Institutional Management
Corporation and Provident National Bank,
dated as of August 16, 1988.
(k) Investment Advisory Agreement (Balanced) 3
between Registrant and Provident
Institutional Management Corporation, dated
as of August 16, 1988.
(l) Sub-Advisory Agreement (Balanced) between 4
Provident Institutional Management
Corporation and Provident National Bank,
dated as of August 16, 1988.
(m) Investment Advisory Agreement (Tax-Free) 3
between Registrant and Provident
Institutional Management Corporation, dated
as of August 16, 1988.
(n) Sub-Advisory Agreement (Tax-Free) between 3
Provident Institutional Management
Corporation and Provident National Bank,
dated as of August 16, 1988.
(s) Investment Advisory Agreement 8
(Government Securities) between Registrant
and Provident Institutional Management
Corporation dated as of April 8, 1991.
(t) Investment Advisory Agreement 8
(High Yield Bond) between Registrant
and Provident Institutional Management
Corporation dated as of April 8, 1991.
(u) Sub-Advisory Agreement (High Yield Bond) 8
between Registrant and Warburg,
Pincus Counsellors, Inc.
dated as of April 8, 1991.
(v) Investment Advisory Agreement 9
(New York Municipal Money Market) between
Registrant and Provident Institutional
Management Corporation dated
November 5, 1991.
7
<PAGE>
(w) Investment Advisory Agreement (Equity) 10
between Registrant and Provident
Institutional Management Corporation
dated November 5, 1991.
(x) Sub-Advisory Agreement (Equity) between 10
Registrant, Provident Institutional
Management Corporation and Warburg,
Pincus Counsellors, Inc. dated
November 5, 1991.
(y) Investment Advisory Agreement 10
(Tax-Free Money Market) between
Registrant and Provident Institutional
Management Corporation dated
April 21, 1992.
(z) Investment Advisory Agreement 11
(BEA International Equity Portfolio)
between Registrant and BEA Associates.
(aa) Investment Advisory Agreement 11
(BEA Strategic Fixed Income Portfolio)
between Registrant and BEA Associates.
(bb) Investment Advisory Agreement 11
(BEA Emerging Markets Equity Portfolio)
between Registrant and BEA Associates.
(cc) Investment Advisory Agreement 14
(Laffer/Canto Equity Portfolio)
between Registrant and Laffer Advisors
Incorporated, dated as of July 21, 1993.
(dd) Sub-Advisory Agreement 12
(Laffer/Canto Sector Equity Portfolio)
between PNC Institutional Management
Corporation and Laffer Advisors
Incorporated, dated as of July 21, 1993.
(ee) Investment Advisory Agreement 15
(BEA U.S. Core Equity Portfolio) between
Registrant and BEA Associates, dated as
of October 27, 1993.
(ff) Investment Advisory Agreement 15
(BEA U.S. Core Fixed Income Portfolio)
between Registrant and BEA Associates,
dated as of October 27, 1993.
(gg) Investment Advisory Agreement 15
8
<PAGE>
(BEA Global Fixed Income Portfolio)
between Registrant and BEA Associates,
dated as of October 27, 1993.
(hh) Investment Advisory Agreement 15
(BEA Municipal Bond Fund Portfolio)
between Registrant and BEA Associates,
dated as of October 27, 1993.
(ii) Investment Advisory Agreement 14
(Warburg Pincus Growth and Income Fund)
between Registrant and Warburg,
Pincus Counsellors, Inc.
(jj) Investment Advisory Agreement 16
(Warburg Pincus Balanced Fund) between
Registrant and Warburg, Pincus Counsellors,
Inc.
(kk) Investment Advisory Agreement 16
(BEA Balanced) between Registrant and
BEA Associates.
(ll) Investment Advisory Agreement 16
(BEA Short Duration Portfolio) between
Registrant and BEA Associates.
(mm) Investment Advisory Agreement (Warburg 21
Pincus Tax Free Fund) between Registrant
and Warburg, Pincus Counsellors, Inc.
(nn) Investment Advisory Agreement (NI 23
Micro Cap Fund) between Registrant and
Numeric Investors, L.P.
(oo) Investment Advisory Agreement (NI 23
Growth Fund) between Registrant and
Numeric Investors, L.P.
(pp) Investment Advisory Agreement (ni 23
Growth & Value Fund) between Registrant
and Numeric Investors, L.P.
(qq) Form of Investment Advisory Agreement (BEA 24
Global Telecommunications Portfolio)
between Registrant and BEA Associates.
(6) (r) Distribution Agreement and Supplements 8
(Classes A through Q) between the
Registrant and Counsellors Securities Inc.
dated as of April 10, 1991.
9
<PAGE>
(s) Distribution Agreement Supplement 9
(Classes L, M, N and O) between the
Registrant and Counsellors Securities
Inc. dated as of November 5, 1991.
(t) Distribution Agreement Supplements 9
(Classes R, S, and Alpha 1 through Theta 4)
between the Registrant and Counsellors
Securities Inc. dated as of November
5, 1991.
(u) Distribution Agreement Supplement 10
(Classes T, U and V) between the Registrant
and Counsellors Securities Inc.
dated as of September 18, 1992.
(v) Distribution Agreement Supplement 14
(Class W) between the Registrant and
Counsellors Securities Inc. dated as of
July 21, 1993.
(w) Distribution Agreement Supplement 14
(Classes X, Y, Z and AA) between the
Registrant and Counselors Securities Inc.
(x) Distribution Agreement Supplement 18
(Classes BB and CC) between Registrant
and Counsellor's Securities Inc. dated
as of October 26, 1994.
(y) Distribution Agreement Supplement 18
(Classes DD and EE) between Registrant and
Counsellor's Securities Inc. dated as of
October 26, 1994.
(z) Distribution Agreement Supplement 19
(Classes L, M, N and O) between the
Registrant and Counsellor's Securities
Inc.
(aa) Distribution Agreement Supplement 19
(Classes R, S) between the Registrant and
Counsellor's Securities Inc.
(bb) Distribution Agreement Supplements 19
(Classes Alpha 1 through Theta 4) between
the Registrant and Counsellor's Securities
Inc.
(cc) Distribution Agreement Supplement Janney 20
Classes (Alpha 1, Alpha 2, Alpha 3 and
10
<PAGE>
Alpha 4 between the Registrant and Counsellor's
Securities, Inc.
(dd) Distribution Agreement Supplement NI 23
Classes (Classes FF, GG and HH)
(ee) Form of Distribution Agreement Supplement 24
(Classes II, JJ, KK, and LL)
(ff) Form of Distribution Agreement Supplement 24
(Classes MM, NN, OO, and PP)
(7) Fund Office Retirement Profit-Sharing and 7
Trust Agreement, dated as of October 24, 1990.
(8) (a) Custodian Agreement between Registrant and 3
Provident National Bank dated as of
August 16, 1988.
(b) Sub-Custodian Agreement among 10
The Chase Manhattan Bank, N.A., the
Registrant and Provident National Bank,
dated as of July 13, 1992, relating to
custody of Registrant's foreign securities.
(e) Amendment No. 1 to Custodian Agreement 9
dated August 16, 1988.
(f) Agreement between Brown Brothers Harriman 10
& Co. and Registrant on behalf of
BEA International Equity Portfolio,
dated September 18, 1992.
(g) Agreement between Brown Brothers Harriman & 10
Co. and Registrant on behalf of BEA
Strategic Fixed Income Portfolio, dated
September 18, 1992.
(h) Agreement between Brown Brothers Harriman 10
& Co. and Registrant on behalf of
BEA Emerging Markets Equity Portfolio,
dated September 18, 1992.
(i) Agreement between Brown Brothers Harriman 15
& Co. and Registrant on behalf of BEA
Emerging Markets Equity, BEA International
Equity, BEA Strategic Fixed Income and BEA
Global Fixed Income Portfolios, dated as of
November 29, 1993.
11
<PAGE>
(j) Agreement between Brown Brothers Harriman 15
& Co. and Registrant on behalf of
BEA U.S. Core Equity and BEA U.S. Core
Fixed Income Portfolio dated as of
November 29, 1993.
(k) Custodian Contract between 18
Registrant and State Street Bank and
Trust Company.
(l) Form of Custody Agreement between the 23
Registrant and Custodial Trust Company on
behalf of NI Micro Cap Fund, NI Growth Fund
and NI Growth & Value Fund, Portfolios of the
Registrant.
(9) (a) Transfer Agency Agreement (Sansom Street) 3
between Registrant and Provident
Financial Processing Corporation,
dated as of August 16, 1988.
(b) Transfer Agency Agreement (Cash Preservation) 3
between Registrant and Provident Financial
Processing Corporation, dated as of
August 16, 1988.
(c) Shareholder Servicing Agreement 3
(Sansom Street Money).
(d) Shareholder Servicing Agreement 3
(Sansom Street Tax-Free Money).
(e) Shareholder Servicing Agreement 3
(Sansom Street Government Money).
(f) Shareholder Services Plan 3
(Sansom Street Money).
(g) Shareholder Services Plan 3
(Sansom Street Tax-Free Money).
(h) Shareholder Services Plan 3
(Sansom Street Government Money).
(i) Transfer Agency Agreement (SafeGuard) 3
between Registrant and Provident Financial
Processing Corporation, dated as of August
16, 1988.
12
<PAGE>
(j) Transfer Agency Agreement (Bedford) 3
between Registrant and Provident
Financial Processing Corporation,
dated as of August 16, 1988.
(k) Transfer Agency Agreement 7
(Income Opportunities) between Registrant
and Provident Financial Processing
Corporation dated June 25, 1990.
(l) Administration and Accounting Services 8
Agreement between Registrant and
Provident Financial Processing
Corporation, relating to Government
Securities Portfolio, dated as of
April 10, 1991.
(m) Administration and Accounting Services 9
Agreement between Registrant and Provident
Financial Processing Corporation, relating
to New York Municipal Money Market Portfolio
dated as of November 5, 1991.
(n) Administration and Accounting Services 9
Agreement between Registrant and Provident
Financial Processing Corporation, relating
to Equity Portfolio dated as of
November 5, 1991.
(o) Administration and Accounting Services 9
Agreement between Registrant and Provident
Financial Processing Corporation, relating
to High Yield Bond Portfolio, dated as of
April 10, 1991.
(p) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation
(International) dated September 18, 1992.
(q) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation (Strategic)
dated September 18, 1992;
(r) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation (Emerging)
dated September 18, 1992.
13
<PAGE>
(s) Transfer Agency Agreement and Supplements 9
(Bradford, Alpha, Beta, Gamma, Delta,
Epsilon, Zeta, Eta and Theta) between
Registrant and Provident Financial
Processing Corporation dated as of
November 5, 1991.
(t) Transfer Agency Agreement Supplement 10
(BEA) between Registrant and Provident
Financial Processing Corporation dated as of
September 18, 1992.
(u) Administrative Services Agreement between 10
Registrant and Counsellor's Fund
Services, Inc. (BEA Portfolios)
dated September 18, 1992.
(v) Administration and Accounting Services 10
Agreement between Registrant and Provident
Financial Processing Corporation, relating
to Tax-Free Money Market Portfolio, dated
as of April 21, 1992.
(w) Transfer Agency Agreement Supplement 12
(Laffer) between Registrant and PFPC Inc.
dated as of July 21, 1993.
(x) Administration and Accounting Services 12
Agreement between Registrant and PFPC Inc.,
relating to Laffer/Canto Equity Fund, dated
July 21, 1993.
(y) Transfer Agency Agreement Supplement 15
(BEA U.S. Core Equity, BEA U.S.
Core Fixed Income, BEA Global Fixed Income
and BEA Municipal Bond Fund) between
Registrant and PFPC Inc. dated as of
October 27, 1993.
(z) Administration and Accounting Services 15
Agreement between Registrant and PFPC Inc.
relating to (Core Equity) dated as of
October 27, 1993.
14
<PAGE>
(aa) Administration and Accounting Services 15
Agreement between Registrant and PFPC Inc.
(Core Fixed Income) dated
October 27, 1993.
(bb) Administration and Accounting Services 15
Agreement between Registrant and
PFPC Inc. (International Fixed Income)
dated October 27, 1993
(cc) Administration and Accounting Services 15
Agreement between Registrant and PFPC Inc.
(Municipal Bond) dated October 27, 1993.
(dd) Transfer Agency Agreement Supplement 18
(BEA Balanced and Short Duration) between
Registrant and PFPC Inc. dated
October 26, 1994.
(ee) Administration and Accounting Services 18
Agreement between Registrant and PFPC Inc.
(BEA Balanced) dated October 26, 1994.
(ff) Administration and Accounting Services 18
Agreement between Registrant and PFPC Inc.
(BEA Short Duration) dated
October 26, 1994.
(gg) Co-Administration Agreement between 18
Registrant and PFPC Inc. (Warburg Pincus
Growth & Income Fund) dated
August 4, 1994.
(hh) Co-Administration Agreement between 18
Registrant and PFPC Inc. (Warburg Pincus
Balanced Fund) dated August 4, 1994.
(ii) Co-Administration Agreement between 18
Registrant and Counsellors Funds Services,
Inc. (Warburg Pincus Growth & Income Fund)
dated August 4, 1994.
(jj) Co-Administration Agreement between 18
Registrant and Counsellors Funds Services,
Inc. (Warburg Pincus Balanced Fund) dated
August 4, 1994.
(kk) Administrative Services Agreement Supplement 18
between Registrant and Counsellor's Fund
Services, Inc. (BEA Classes) dated
October 26, 1994.
(ll) Co-Administration Agreement between 21
Registrant and PFPC Inc. (Warburg Pincus
Tax Free Fund) dated March 31, 1995.
15
<PAGE>
(mm) Co-Administration Agreement between 21
Registrant and Counsellors Funds
Services, Inc. (Warburg Pincus Tax Free
Fund) dated March 31, 1995.
(nn) Transfer Agency and Service Agreement 21
between Registrant and State Street
Bank and Trust Company and PFPC, Inc.
dated February 1, 1995.
(oo) Supplement to Transfer Agency and Service 21
Agreement between Registrant, State Street
Bank and Trust Company, Inc. and PFPC
dated April 10, 1995.
(pp) Amended and Restated Credit Agreement dated 22
December 15, 1994.
(qq) Transfer Agency Agreement Supplement (ni 23
Micro Cap Fund, NI Growth Fund and
NI Growth & Value Fund) between
Registrant and PFPC, Inc. dated April 24, 1996.
(rr) Administration and Accounting Services 23
Agreement between Registrant and PFPC, Inc.
(NI Micro Cap Fund) dated April 24, 1996.
(ss) Administration and Accounting Services 23
Agreement between Registrant and PFPC, Inc.
(NI Growth Fund) dated April 24, 1996.
(tt) Administration and Accounting Services 23
Agreement between Registrant and PFPC, Inc.
(NI Growth & Value Fund) dated April 24,
1996.
16
<PAGE>
(uu) Administrative Services Agreement between 23
Registrant and Counsellors Fund Services,
Inc. (NI Micro Cap Fund, NI
Growth Fund and NI Growth & Value Fund)
dated April 24, 1996.
(vv) Form of Administration and Accounting Services 24
Agreement between Registrant and PFPC, Inc.
(BEA Global Telecommunications).
(ww) Form of Co-Administration Agreement between 24
Registrant Investor and BEA Associates
(BEA International Equity Investor
Portfolio).
(xx) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
International Equity Advisor Portfolio).
(yy) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
Emerging Markets Equity Investor
Portfolio).
(zz) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
Emerging Markets Equity Advisor
Portfolio).
(aaa) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
High Yield Investor Portfolio).
(bbb) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
High Yield Advisor Portfolio).
(ccc) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
Global Telecommunications Investor
Portfolio).
(ddd) Form of Co-Administration Agreement between 24
Registrant and BEA Associates (BEA
Global Telecommunications Advisor
Portfolio).
(eee) Form of Transfer Agreement and Service 24
Agreement between Registrant and State
Street Bank and Trust Company.
17
<PAGE>
(10)(a) Incorporated by reference herein to
Registrant's 24f-2 Notice for the
fiscal year ended August 31, 1996
filed on October 28, 1996. Opinion
of Counsel.
(10)(b) Consent of Counsel.
(11) Consent of Independent Accountants.
(12) None.
(13)(a) Subscription Agreement (relating to 2
Classes A through N).
(b) Subscription Agreement between Registrant 7
and Planco Financial Services, Inc.,
relating to Classes O and P.
(c) Subscription Agreement between Registrant and 7
Planco Financial Services, Inc., relating to
Class Q.
(d) Subscription Agreement between Registrant 9
and Counsellors Securities Inc. relating to
Classes R, S, and Alpha 1 through Theta 4.
(e) Subscription Agreement between Registrant 10
and Counsellors Securities Inc. relating to
Classes T, U and V.
(f) Subscription Agreement between Registrant 18
and Counsellor's Securities Inc. relating to
Classes BB and CC.
(g) Purchase Agreement between Registrant and 21
Counsellors Securities Inc. relating to
Class DD (Warburg Pincus Growth & Income
Fund Series 2).
(h) Purchase Agreement between Registrant and 21
Counsellors Securities Inc. relating to
Class EE (Warburg Pincus Balanced Fund
Series 2).
(i) Purchase Agreement between Registrant and 23
Numeric Investors, L.P. relating to
Class FF (NI Micro Cap Fund).
(j) Purchase Agreement between Registrant and 23
Numeric Investors, L.P. relating to
Class GG (NI Growth Fund).
18
<PAGE>
(k) Purchase Agreement between Registrant and 23
Numeric Investors, L.P. relating to
Class HH (NI Growth & Value Fund)
(l) Subscription Agreement between 24
Registrant and Counsellors Securities,
Inc. relating to Classes II through PP.
(14) None.
(15)(a) Plan of Distribution (Sansom Street Money). 3
(b) Plan of Distribution (Sansom Street Tax-Free 3
Money).
(c) Plan of Distribution (Sansom Street 3
Government Money).
(d) Plan of Distribution (Cash Preservation 3
Money).
(e) Plan of Distribution (Cash Preservation 3
Tax-Free Money).
(f) Plan of Distribution (SafeGuard Equity). 3
(g) Plan of Distribution 3
(SafeGuard Fixed Income).
(h) Plan of Distribution (SafeGuard Balanced). 3
(i) Plan of Distribution (SafeGuard Tax-Free). 3
(j) Plan of Distribution (SafeGuard Money). 3
(k) Plan of Distribution (SafeGuard Tax-Free
Money). 3
(l) Plan of Distribution (Bedford Money). 3
(m) Plan of Distribution (Bedford Tax-Free 3
Money).
(n) Plan of Distribution (Bedford Government 3
Money).
(o) Plan of Distribution (Bedford New York 7
Municipal Money).
19
<PAGE>
(p) Plan of Distribution (SafeGuard Government 7
Securities).
(q) Plan of Distribution (Income Opportunities 7
High Yield).
(r) Amendment No. 1 to Plans of Distribution 8
(Classes A through Q).
(s) Plan of Distribution (Bradford Tax-Free 9
Money).
(t) Plan of Distribution (Bradford Government 9
Money).
(u) Plan of Distribution (Alpha Money). 9
(v) Plan of Distribution (Alpha Tax-Free 9
Money).
(w) Plan of Distribution (Alpha Government 9
Money).
(x) Plan of Distribution (Alpha New York 9
Money).
(y) Plan of Distribution (Beta Money). 9
(z) Plan of Distribution (Beta Tax-Free 9
Money).
(aa) Plan of Distribution (Beta Government 9
Money).
(bb) Plan of Distribution (Beta New York 9
Money).
(cc) Plan of Distribution (Gamma Money). 9
(dd) Plan of Distribution (Gamma Tax-Free 9
Money).
(ee) Plan of Distribution (Gamma Government 9
Money).
(ff) Plan of Distribution (Gamma New York 9
Money).
(gg) Plan of Distribution (Delta Money). 9
(hh) Plan of Distribution (Delta Tax-Free 9
20
<PAGE>
Money).
(ii) Plan of Distribution (Delta Government 9
Money).
(jj) Plan of Distribution (Delta New York 9
Money).
(kk) Plan of Distribution (Epsilon Money). 9
(ll) Plan of Distribution (Epsilon Tax-Free 9
Money).
(mm) Plan of Distribution (Epsilon Government 9
Money).
(nn) Plan of Distribution (Epsilon New York 9
Money).
(oo) Plan of Distribution (Zeta Money). 9
(pp) Plan of Distribution (Zeta Tax-Free 9
Money).
(qq) Plan of Distribution (Zeta Government 9
Money).
(rr) Plan of Distribution (Zeta New York 9
Money).
(ss) Plan of Distribution (Eta Money). 9
(tt) Plan of Distribution (Eta Tax-Free Money). 9
(uu) Plan of Distribution (Eta Government 9
Money).
(vv) Plan of Distribution (Eta New York 9
Money).
(ww) Plan of Distribution (Theta Money). 9
(xx) Plan of Distribution (Theta Tax-Free 9
Money).
(yy) Plan of Distribution (Theta Government 9
Money).
(zz) Plan of Distribution (Theta New York 9
Money).
21
<PAGE>
(aaa) Plan of Distribution (Laffer Equity). 12
(bbb) Plan Distribution (Warburg Pincus Growth 18
& Income Series 2).
(ccc) Plan of Distribution (Warburg Pincus 18
Balanced Series 2).
(ddd) Form of Plan of Distribution (BEA 24
International Equity Investor).
(eee) Form of Plan of Distribution (BEA 24
International Equity Advisor).
(fff) Form of Plan of Distribution (BEA Emerging 24
Markets Equity Investor).
(ggg) Form of Plan of Distribution (BEA Emerging 24
Markets Equity Advisor).
(hhh) Form of Plan of Distribution (BEA High Yield 24
Investor).
(iii) Form of Plan of Distribution (BEA High Yield 24
Advisor).
(jjj) Form of Plan of Distribution (BEA Global 24
Telecommunications Investor).
(kkk) Form of Plan of Distribution (BEA Global 24
Telecommunications Advisor).
(16) Schedule of Computation of Performance 3
Quotations.
(17) Financial Data Schedule
(18) Rule 18f-3 Plan. 21
(19) Representation of Ballard Spahr Andrews &
Ingersoll pursuant to Rule 485(b) under the
Securities Act of 1933.
- -----------------
Note #
- ------
1 Incorporated herein by reference to the same exhibit number of Registrant's
Registration Statement (No. 33-20827) filed on March 24, 1988.
22
<PAGE>
2 Incorporated herein by reference to the same exhibit number of
Pre-Effective Amendment No. 2 to Registrant's Registration Statement (No.
33-20827) filed on July 12, 1988.
3 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 1 to Registrant's Registration Statement (No.
33-20827) filed on March 23, 1989.
4 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 2 to Registrant's Registration Statement (No.
33-20827) filed on October 25, 1989.
5 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 3 to the Registrant's Registration Statement
(No. 33-20827) filed on April 27, 1990.
6 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 4 to the Registrant's Registration Statement
(No. 33-20827) filed on May 1, 1990.
7 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 5 to the Registrant's Registration Statement
(No. 33-20827) filed on December 14, 1990.
23
<PAGE>
Note #
- ------
8 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 6 to the Registrant's Registration Statement
(No. 33-20827) filed on October 24, 1991.
9 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 7 to the Registrant's Registration Statement
(No. 33-20827) filed on July 15, 1992.
10 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 8 to the Registrant's Registration Statement
(No. 33-20827) filed on October 22, 1992.
11 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 9 to the Registrant's Registration Statement
(No. 33-20827) filed on December 16, 1992.
12 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 11 to the Registrant's Registrant Statement
(No. 33-20827) filed on June 21, 1993.
13 Incorporated herein by reference to the same exhibit number Post-Effective
Amendment No. 12 to the Registrant's Registration Statement (No. 33-20827)
filed on July 27, 1993.
14 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 13 to the Registrant's Registration Statement
(No. 33-20827) filed on October 29, 1993.
15 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 14 to the Registrant's Registration Statement
(No. 33-20827) filed on December 21, 1993.
16 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 19 to the Registrant's Registration Statement
(No. 33-20827) filed on October 14, 1994.
17 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 20 to the Registrant's Registration Statement
(No. 33-20827) filed on October 21, 1994.
18 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 21 to the Registrant's Registration Statement
(No. 33-20827) filed on October 28, 1994.
19 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 22 to the Registrant's Registration Statement
(No. 33-20827) filed on December 19, 1994.
24
<PAGE>
20 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 27 to the Registrant's Registration Statement
(No. 33-20827) filed on March 31, 1995.
21 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 28 to the Registrant's Registration Statement
(No. 33-20827) filed on October 6, 1995.
22 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 29 to the Registrant's Registration Statement
(No. 33-20827) filed on October 25, 1995.
23 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 34 to the Registrant's Registration Statement
(No. 33-20827) filed on May 16, 1996.
24 Incorporated herein by reference to the same exhibit number of
Post-Effective Amendment No. 37 to the Registrant's Registration Statement
(No. 33-20827) filed July 30, 1996.
25 INCORPORATED HEREIN BY REFERENCE TO THE SAME EXHIBIT NUMBER OF
POST-EFFECTIVE AMENDMENT NO. 39 TO THE REGISTRANT'S REGISTRATION STATEMENT
(NO. 33-20827) FILED ON OCTOBER 11, 1996.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following information is given as of NOVEMBER 6, 1996.
Title of Class of Common Stock Number of Record Holders
------------------------------ ------------------------
a) RBB Money Market 11
b) RBB Municipal Money Market 2
c) Cash Preservation Money Market 35
d) Cash Preservation Municipal Money MARKET 65
e) Sansom Street Money Market 3
f) Sansom Street Municipal Money Market 0
g) Sansom Street Government Obligations 0
Money Market
h) Bedford Money MARKET 231,060
i) Bedford Municipal Money MARKET 6,818
j) Bedford Government Obligations MONEY 6,778
Market
k) Bedford New York Municipal Money MARKET 2,917
l) RBB Government SECURITIES 620
m) Bradford Municipal Money Market 1
n) Bradford Government Obligations Money 1
Market
25
<PAGE>
o) BEA International Equity 206
p) BEA High Yield 48
q) BEA Emerging Markets Equity 37
r) BEA U.S. Core Equity 70
s) BEA U.S. Core Fixed Income 49
t) BEA U.S. Global Fixed Income 10
u) BEA Municipal Bond fund 35
v) BEA Short Duration 0
w) BEA Balanced 0
x) BEA TELECOMMUNICATIONS 0
Y) Janney Montgomery SCOTT 1
Money Market
Z) Janney Montgomery Scott 1
Municipal Money Market
AA) Janney Montgomery Scott 1
Government Obligations Money Market
BB) Janney Montgomery Scott 1
New York Municipal Money Market
CC) ni Micro CAP 1053
dd) ni Growth 2182
EE) NI GROWTH & Value 679
Item 27. Indemnification
---------------
Sections 1, 2, 3 and 4 of Article VIII of Registrant's Articles of
Incorporation, as amended, incorporated herein by reference as Exhibits 1(a) and
1(c), provide as follows:
Section 1. To the fullest extent that limitations on the
liability of directors and officers are permitted by the Maryland
General Corporation Law, no director or officer of the Corporation
shall have any liability to the Corporation or its shareholders for
damages. This limitation on liability applies to events occurring at
the time a person serves as a director or officer of the Corporation
whether or not such person is a director or officer at the time of any
proceeding in which liability is asserted.
Section 2. The Corporation shall indemnify and advance expenses
to its currently acting and its former directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses
to its officers to the same extent as its directors and to such
further extent as is consistent with law. The Board of Directors may
by By-law, resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to the
fullest extent permitted by the Maryland General Corporation Law.
26
<PAGE>
Section 3. No provision of this Article shall be effective to
protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security
holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4. References to the Maryland General Corporation Law in
this Article are to the law as from time to time amended. No further
amendment to the Articles of Incorporation of the Corporation shall
decrease, but may expand, any right of any person under this Article
based on any event, omission or proceeding prior to such amendment.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Registrant of expenses incurred or
paid by a director, officer or controlling person of Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 28. Business and Other Connections of Investment Adviser
Information as to any other business, profession, vocation or
employment of a substantial nature in which any directors and officers of PIMC,
BEA, and NUMERIC are, or at any time during the past two (2) years have been,
engaged for their own accounts or in the capacity of director, officer,
employee, partner or trustee is incorporated herein by reference to Schedules A
and D of PIMC's Form ADV (File No. 801-13304) filed on March 28, 1993, Schedules
B and D of BEA's Form ADV (File No. 801-37170) filed on March 30, 1993, and
Schedules B and D of NUMERIC'S Form ADV (File No. 801-35649) filed on NOVEMBER
24, 1995, respectively.
There is set forth below information as to any other business,
profession, vocation or employment of a substantial nature in which each
director or officer of PNC Bank, National Association (successor by merger to
Provident National Bank) ("PNC Bank"), is, or at any time during the past two
years has been, engaged for his own account or in the capacity of director,
officer, employee, partner or trustee.
27
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
Directors and Officers
To the knowledge of Registrant, none of the directors or officers of
PNC except those set forth below, is or has been, at any time during the past
two years, engaged in any other business, profession, vocation or employment of
a substantial nature, except that certain directors and officers of PNC Bank
also hold various positions with, and engage in business for, PNC Bank Corp.
(formerly PNC Financial Corp), which owns all the outstanding stock of PNC Bank,
or other subsidiaries of PNC Bank Corp. Set forth below are the names and
principal businesses of the directors and certain of the senior executive
officers of PNC Bank who are engaged in any other business, profession, vocation
or employment of substantial nature.
28
<PAGE>
PNC BANK, NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
Position with
PNC Bank,
National Other Business Type of
Association Name Connections Business
- ------------ ---- -------------- --------
<S> <C> <C> <C>
Director B.R. Brown President and C.E.O. of Coal
Consol, Inc.
Pittsburgh, PA (22)
Director Constance E. Clayton Superintendent of Schools Educator
The School District of
Philadelphia
Philadelphia, PA (23)
Director F. Eugene Dixon, Jr. Private Trustee Trustee
Lafayette Hill, PA (24)
Director A. James Freeman Vice Chairman and C.E.O. Manufacturing
Lord Corporation
Erie, PA (25)
Director Banking
Marine Bank
Erie, PA (26)
Director Dr. Stuart Heydt President and C.E.O. Medical
Geisinger Foundation
Danville, PA (27)
Director Edward P. Junker, III Chairman and C.E.O. Banking
Marine Bank
Erie, PA (26)
Director Thomas A. McConomy President, C.E.O. and Manufacturing
Chairman, Calgon Carbon
Corporation
Pittsburgh, PA (28)
Director Robert C. Milsom Retired
Pittsburgh, PA*
Director Thomas H. O'Brien Chairman and C.E.O. Bank Holding
PNC Bank Corp. (14)
Director Dr. J. Dennis O'Connor Chancellor Education
University of Pittsburgh
Pittsburgh, PA (29)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Position with
PNC Bank,
National Other Business Type of
Association Name Connections Business
- ------------ ---- -------------- --------
<S> <C> <C> <C>
Director Rocco A. Ortenzio Chairman and C.E.O. Medical
Continental Medical Systems,
Inc.
Mechanicsburg, PA (30)
Director Robert C. Robb, Jr. Partner Financial and
Lewis, Eckert, Robb & Management
Company Consultants
Plymouth Meeting, PA (31)
Director Daniel M. Rooney President, Pittsburgh Football
Steelers Football Club
of the National Football
League
Pittsburgh, PA (32)
Director Seth E. Schofield Chairman, President and Airline
C.E.O.
USAir Group, Inc. and
USAir, Inc.
Arlington, VA (33)
Director Robert M. Valentini President and C.E.O. Bell of Communica-
Pennsylvania and Chairman tions
Network Policy Council of Bell
Atlantic Corporation
Philadelphia, PA (34)
President and James E. Rohr President Bank
Chief Executive PNC Bank Corp. Holding
Officer (14) Company
President and Bruce E. Robbins None.
Chief Executive
Officer of PNC
Bank, National
Association,
Pittsburgh
Senior Executive Edward V. Randall, Jr. None.
Vice President
Executive J. Richard Carnall Director Banking
Vice President PNC National Bank (2)
Chairman and Director Financial-
PFPC Inc. (3) Related
Services
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Position with
PNC Bank,
National Other Business Type of
Association Name Connections Business
- ------------ ---- -------------- --------
<S> <C> <C> <C>
Director
PNC Trust Company Fiduciary
of New York (11) Activities
Director Equipment
Hayden Bolts, Inc.* Leasing
Director, Real Estate
Parkway Real Estate
Company*
Director Investment
Provident Capital Advisory
Management, Inc. (5)
Director Investment
Advanced Investment Advisory
Management, Inc. (15)
Executive Richard C. Caldwell Director Banking
Vice President PNC National Bank (2)
Director Investment
Provident Capital Advisory
Management, Inc. (5)
Director Fiduciary
PNC Trust Company Activities
of New York (11)
Executive Vice President Bank Holding
PNC Bank Corp. (14) Company
Director Investment
Advanced Investment Advisory
Management, Inc. (15)
Director Banking
PNC Bank, New Jersey,
New Jersey, National
Association (16)
Director Financial-
PFPC Inc. (3) Related
Services
Executive Vice Herbert G. None.
President Summerfield, Jr.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Position with
PNC Bank,
National Other Business Type of
Association Name Connections Business
- ------------ ---- -------------- --------
<S> <C> <C> <C>
Executive Vice Joe R. Irwin None.
President
President and Richard L. Smoot Senior Vice President Banking
Chief Executive Operations
Officer of PNC PNC Bank Corp. (20)
Bank, National
Association, Director Fiduciary
Philadelphia PNC Trust Company of Activities
New York (11)
Director Investment
PNC Institutional Advisory
Management Corporation (28)
Director Financial
PFPC Inc. (3) Related
Services
Executive Vice W. Herbert Crowder, III None.
President
Executive Vice Walter L. West None.
President
Senior Vice George Lula None.
President
Secretary William F. Strome Director International
PNC Bank International (35) Banking
Services
Managing General Counsel Bank Holding
and Senior Vice President Company
PNC Bank Corp.
Senior Vice James P. Conley None.
President/
Credit Policy
</TABLE>
- --------------------
* For more information, contact William F. Strome, PNC Bank, National
Association, Broad and Chestnut Streets, Philadelphia, PA 19101.
(1) PNC Bank, National Association, 120 S. 17th Street,
Philadelphia, PA 19103.
(2) PNC National Bank, 103 Bellevue Parkway, Wilmington, DE 19809.
(3) PFPC Inc., 400 Bellevue Parkway, Wilmington, DE 19809.
32
<PAGE>
(4) PNC Service Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(5) Provident Capital Management, Inc., 30 S. 17th Street, Site 1500,
Philadelphia, PA 19103.
(6) PNC National Investment Corporation, Broad and Chestnut Streets,
Philadelphia, PA 19101.
(7) Provident Realty Management, Inc., Broad and Chestnut Streets,
Philadelphia, PA 19101.
(8) Provident Realty, Inc., Broad and Chestnut Streets,
Philadelphia, PA 19101.
(9) PNC Bancorp, Inc. 3411 Silverside Park, Wilmington, DE 19810
(10) PNC New Jersey Credit Corp, 1415 Route 70 East, Suite 604,
Cherry Hill, NJ 08034.
(11) PNC Trust Company of New York, 40 Broad Street, New York, NY 10084.
(12) Provcor Properties, Inc., Broad and Chestnut Streets,
Philadelphia, PA 19101.
(13) PNC Credit Corp, 103 Bellevue Parkway, Wilmington, DE 19809.
(14) PNC Bank Corp., 5th Avenue and Wood Streets, Pittsburgh, PA 15265.
(15) Advanced Investment Management, Inc., 27th Floor, One Oliver Plaza,
Pittsburgh, PA 15265.
(16) PNC Bank of New Jersey, National Association, Woodland Falls Corporate
Park, 210 Lake Drive East, Cherry Hill, NJ 08002.
(17) PNC Institutional Management Corporation, 400 Bellevue Parkway,
Wilmington, DE 19809.
(18) Provident National Leasing Corporation, Broad and Chestnut Streets,
Philadelphia, PA 19101
(19) Provident National Bank Corp. New Jersey, 1 Centennial Square,
Haddonfield, NJ 08033
(20) The Clayton Bank and Trust Company, Clayton, DE 19938
(21) Keystone Life Insurance Company, 1207 Chestnut Street,
Philadelphia, PA 19107-4101
(22) Consol, Inc., Consol Plaza, Pittsburgh, PA 15241
(23) School District of Philadelphia, 21 Street and The Parkway,
Philadelphia, PA 19103-1099
(24) F. Eugene Dixon, Jr., Private Trustee, 665 Thomas Road,
Lafayette Hill, PA 19444-0178
(25) Lord Corporation, 2000 W. Grandview Boulevard, Erie, PA 16514
(26) Marine Bank, Ninth and State Streets, Erie, PA 16553
(27) Geisinger Foundation, 100 N. Academy Avenue, Danville, PA 17822
(28) Calgon Carbon Corporation, P.O. Box 717, Pittsburgh, PA 15230-0717
(29) University of Pittsburgh, 107 Cathedral of Learning, Pittsburgh, PA 15260
(30) Continental Medical Systems, Inc., P.O. Box 715, Mechanicsburg, PA 17055
(31) Lewis, Eckert, Robb & Company, 425 One Plymouth Meeting,
Plymouth Meeting, PA 19462
(32) Football Club of the National Football League, 300 Stadium Circle,
Pittsburgh, PA 15212
(33) USAir Group, Inc. and USAir, Inc., 2345 Crystal Drive,
Arlington, VA 22227
(34) Bell of Pennsylvania, One Parkway, Philadelphia, PA 19102
(35) PNC Bank International, 5th and Wood Streets, Pittsburgh, PA 15222
33
<PAGE>
Item 29. Principal Underwriter
---------------------
(a) Counsellors Securities Inc. (the "Distributor") acts as
distributor for the following investment companies:
Warburg, Pincus Cash Reserve Fund
Warburg, Pincus New York Tax Exempt Fund
Warburg, Pincus New York Municipal Bond Fund
Warburg, Pincus Intermediate Maturity Government Fund
Warburg, Pincus Fixed Income Fund
Warburg, Pincus Global Fixed Income Fund
Warburg, Pincus Capital Appreciation Fund
Warburg, Pincus Emerging Growth Fund
Warburg, Pincus International Equity Fund
Warburg, Pincus Japan OTC Fund
Counsellors Tandem Securities Fund
Warburg Pincus Growth & Income Fund
Warburg Pincus Balanced Fund
Warburg Pincus Tax Free Fund
The Distributor acts as a principal underwriter, depositor or investment adviser
for the following investment companies: None other than Registrant and companies
listed above.
(b) Information for each director or officer of the Distributor is
set forth below:
Name and Principal Positions and Offices Positions and Offices
Business Address with the Distributor with Registrant
- ------------------ --------------------- ----------------------
John L. Vogelstein Director
466 Lexington Avenue
New York, New York 10017
Lionel I. Pincus Director
466 Lexington Avenue
New York, New York 10017
Reuben S. Leibowitz Director,
466 Lexington Avenue President and Chief
New York, New York 10017 Financial Officer
John L. Furth Director
466 Lexington Avenue
New York, New York 10017
Arnold M. Reichman Vice President, Director
466 Lexington Avenue Secretary and
New York, New York 10017 Chief Operating Officer
34
<PAGE>
Roger Reinlieb Vice President
466 Lexington Avenue
New York, New York 10017
Karen Amato Assistant Secretary
466 Lexington Avenue
New York, New York 10017
Stephen Distler Treasurer
466 Lexington Avenue
New York, New York 10017
(c) Information as to commissions and other compensation received by
the principal underwriter is set forth below.
Net
Name of Underwriting Compensation
Principal Discounts and on Redemption Brokerage Other
Underwriter Commissions and Repurchase Commissions Compensation
- ----------- ------------- -------------- ----------- ------------
Counsellors $ 0 $ 0 $ 0 $ 0
Securities
Inc.
Item 30. Location of Accounts and Records
--------------------------------
(1) PNC Bank, National Association (successor by merger to Provident
National Bank), 1600 MARKET Street, Philadelphia, PA 19103 (records
relating to its functions as sub-adviser and custodian).
(2) Counsellors Securities Inc., 466 Lexington Avenue, New York, New York
10017 (records relating to its functions as distributor).
(3) PNC Institutional Management Corporation (formerly Provident
Institutional Management Corporation), Bellevue Corporate Center, 103
Bellevue Parkway, Wilmington, Delaware 19809 (records relating to its
functions as investment adviser, sub-adviser and administrator).
(4) PFPC Inc. (formerly Provident Financial Processing Corporation),
Bellevue Corporate Center, 400 Bellevue Parkway, Wilmington, Delaware
19809 (records relating to its functions as transfer agent and
dividend disbursing agent).
35
<PAGE>
(5) Ballard Spahr Andrews & Ingersoll, 1735 Market Street - 51st Floor,
Philadelphia, Pennsylvania 19103 (Registrant's Articles of
Incorporation, By-Laws and Minute Books).
(6) BEA Associates, One Citicorp Center, 153 East 53rd Street, New York,
New York 10022 (records relating to its function as investment
adviser).
(7) Warburg, Pincus Counsellors, Inc., 466 Lexington Avenue, New York, New
York 10017-3147 (records relating to its functions as investment
adviser).
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
(a) Registrant hereby undertakes to hold a meeting of shareholders
for the purpose of considering the removal of directors in the
event the requisite number of shareholders so request.
(b) Registrant hereby undertakes to file a post-effective amendment,
using unaudited financial statements for RBB Boston Partners
Large Cap Value Fund (Investor Class, Advisor Class and
Institutional Class); n/i Micro Cap Fund, n/i Growth Fund and n/i
Growth & Value Fund; BEA International Equity (Investor and
Advisor Classes), BEA Emerging Markets Equity (Investor and
Advisor Classes), BEA Global Telecommunications (Investor and
Advisor Classes) and BEA High Yield (Investor and Advisor
Classes) Funds which need not be certified, within four to six
months from effective date of this Registration Statement.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment to its Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Wilmington, and State of
Delaware, on NOVEMBER 20, 1996.
THE RBB FUND, INC.
By: /s/ Edward J. Roach
--------------------
Edward J. Roach
President and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to Registrant's Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ Edward J. Roach President (Principal NOVEMBER 20, 1996
- ---------------------- Executive Officer) and
Edward J. Roach Treasurer (Principal
Financial and Accounting
Officer)
/s/ Donald van Roden Director NOVEMBER 20, 1996
- -----------------------
Donald van Roden
Director ,
- ----------------
Francis J. McKay
/s/ Marvin E. Sternberg Director NOVEMBER 20, 1996
- -----------------------
Marvin E. Sternberg
/s/ Julian A. Brodsky Director NOVEMBER 20, 1996
- -----------------------
Julian A. Brodsky
/s/ Arnold M. Reichman Director NOVEMBER 20, 1996
- -----------------------
Arnold M. Reichman
/s/ Robert Sablowsky Director NOVEMBER 20, 1996
- --------------------
Robert Sablowsky
<PAGE>
THE RBB FUND, INC.
RBB CLASSES
CASH PRESERVATION CLASSES
SANSOM STREET CLASSES
BEDFORD CLASSES
BRADFORD CLASSES
BEA INSTITUTIONAL CLASSES
BEA INVESTOR CLASSES
BEA ADVISOR CLASSES
BOSTON PARTNERS INSTITUTIONAL CLASS
BOSTON PARTNERS INVESTOR CLASS
BOSTON PARTNERS ADVISOR CLASS
JANNEY CLASSES
N/I CLASSES
BETA CLASSES
GAMMA CLASSES
DELTA CLASSES
EPSILON CLASSES
ZETA CLASSES
ETA CLASSES
THETA CLASSES
EXHIBIT INDEX
-------------
Exhibit
- -------
Ex.-99B(10)(b) Consent of Counsel
Ex.-99B(11) Consent of Independent Accountants
Ex.-99B(19) Representation of Ballard Spahr Andrews & Ingersoll pursuant to
Rule 485(b) under Securities Act of 1933
Ex.- 27.051 MONEY MARKET PORTFOLIO CASH PRESERVATION CLASS
EX.-27.052 MONEY MARKET PORTFOLIO - SANSOM STREET CLASS
EX.-27.053 MONEY MARKET PORTFOLIO - JANNEY MONTGOMERY SCOTT CLASS
EX.-27.054 MONEY MARKET PORTFOLIO - RBB CLASS
EX.-27.055 MONEY MARKET PORTFOLIO - BEDFORD CLASS
EX.-27.061 MUNICIPAL MONEY MARKET PORTFOLIO - CASH PRESERVATION CLASS
EX.-27.062 MUNICIPAL MONEY MARKET PORTFOLIO - BRADFORD CLASS
EX.-27.063 MUNICIPAL MONEY MARKET PORTFOLIO - JANNEY MONTGOMERY SCOTT CLASS
EX.-27.064 MUNICIPAL MONEY MARKET PORTFOLIO - RBB CLASS
EX.-27.065 MUNICIPAL MONEY MARKET PORTFOLIO - BEDFORD CLASS
EX.-27.071 GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO -BRADFORD CLASS
EX.-27.072 GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIOS -JANNEY
MONTGOMERY SCOTT CLASS
EX.-27.073 GOVERNMENT OBLIGATIONS MONEY MARKET PORTFOLIO -BEDFORD CLASS
EX.-27.081 NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO - JANNEY MONTGOMERY
SCOTT CLASS
EX.-27.082 NEW YORK MUNICIPAL MONEY MARKET PORTFOLIO - BEDFORD CLASS
EX.-27.10 GOVERNMENT SECURITIES PORTFOLIO - RBB CLASS
Exhibit (10)(b)
CONSENT
-------
We hereby consent to the use of our name under the caption
"Miscellaneous-Counsel" in the Statement of Additional Information of
Post-Effective Amendment No. 40 to the Registration Statement on Form N-1A of
The RBB Fund, Inc. (Registration No. 33-20827) filed under the Securities Act of
1933 and Amendment No. 42 under the Investment Company Act of 1940.
/s/ Ballard Spahr Andrews & Ingersoll
-------------------------------------
Ballard Spahr Andrews & Ingersoll
November 20, 1996
EXHIBIT (11)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect of Post-Effective Amendment No.
40 to the Registration Statement (No. 33-20827) on Form N-1A under the
Securities Act of 1933, as amended, of The RBB Fund, Inc.:
(Diamond) The inclusion of our report dated October 15, 1996 on our audit
of financial statements and financial highlights of the
Government Securities, Money Market, Municipal Money Market,
Government Obligations Money Market, and New York Municipal
Money Market Portfolios of The RBB Fund, Inc., in the
Statement of Additional Information.
(Diamond) The reference to our Firm under the headings "Financial
Highlights" in the Prospectus and under the heading
"Independent Accountants" in the Statement of Additional
Information.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
November 21, 1996
Exhibit (19)
REPRESENTATION OF COUNSEL PURSUANT TO RULE
485(b) UNDER THE SECURITIES ACT OF 1933
We hereby represent that Post-Effective Amendment No. 40 to the
Registration Statement on Form N-1A of the RBB Fund, Inc. (Registration No.
33-20827) filed with the Securities and Exchange Commission under the Securities
Act of 1933 and Amendment No. 42 under the Investment Company Act of 1940
contains no disclosures which would render it ineligible to become effective
pursuant to paragraph (b) of Rule 485 under the Securities Act of 1933.
/s/Ballard Spahr Andrews & Ingersoll
------------------------------------
Ballard Spahr Andrews & Ingersoll
November 20, 1996
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